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THE LIBRARY 

OF 

THE UNIVERSITY 

OF CALIFORNIA 

LOS ANGELES 



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EURAL CREDITS 



JOINT HEARINGS 

BEFORE THE 

SUBCOMMITTEES OF THE 
COMMITTEES ON BANKING AND CURRENCY 

OF THE SENATE AND OF THE 
HOUSE OF REPRESENTATIVES 

CHARGED WITH THE INVESTIGATION 
OF RURAL CREDITS 



Sixty-third Congress, Second Session 



PRINTED FOR THE USE OP THE SENATE COMMITTEE 
ON BANKING AND CURRENCY. 



WASHINGTON 

GOVERNMENT PRINTING OFFICE 

1914 



SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, 
I'M TED STATES SENATE. 

HENRY F. HOLLIS, New Hampshire, Chairman. 

BLAIR LEE, Maryland. 

COE I. CRAWFORD, South Dakota. 

SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY, 
HOUSE OF REPRESENTATIVES. 

ROBERT J. BULKLEY, Ohio, Chairman. 
WILLIAM G. BROWN, West Virginia. J. WILLARD RAGSDALE, South Carolina. 

CLAUDE U. STONE, Illinois. BVERIS A. HAYES, California. 

HARRY H. SELDOMBIDGE, Colorado. FRANK P. WOODS, Iowa. 

CLAUDE WEAVER, Oklahoma. EDMUND I'LATT, New York. 

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9,05/ 

U.5A5 

LIST OF WITNESSES. 

Pago. 

Ady, Abel, Klamath Falls, Oreg 429, 964 

Alexander, H. Q. , physician and farmer, Matthews, N. C 280 

Allen, Frederick H., New York, N. Y 969 

Atkeson, T. C, farmer, Morgan town, W. Va 260 

Badow, Gerard, M. J., journalist, Chicago, 111 570 

Bathrick, Hon. Ellsworth R. , Member of Congress from Ohio 858 

Breitung, Edward N., mining engineer, Marquette, Mich 319 

Brooks, Prof. T. J., Agricultural and Mechanical College of Mississippi 240 

Coulter, John Lee, secretary United States Commission to Investigate and 

Study Rural Credits 151, 830 

Cunningham, John, farmer, Granville, Ohio 599 

Doak, W. B., farmer, Clifton Station, Va 662 

Daniel, T. dishing, financial writer, Washington, D. C 764 

Fischer, George, secretary Northwest Land & Home Builders' Union, Redfield, 

S. Dak 134 

Fletcher, Duncan U. , Senator from Florida 1 

Hill, John Sprunt, Durham, N. C 442 

Hulings, Hon. Willis J., Member of Congress from Pennsylvania 947 

Ingalls, Hon. Sheffield, lieutenant governor of Kansas, Atchison, Kans 784 

Jones, Gordon, president United States National Bank, Denver, Colo 608, 682 

Jordon, Hon. Harvie, member United States Commission on Rural Credits 557 

King, Will R., chief counsel Reclamation Service, Washington, D. C 940 

Lane, Hon. Harry, Senator from Oregon 928 

Lennox, John, Colorado Springs, Colo 305, 313 

Mobley, H. S. , farmer, Prairie Grove, Ark 686 

Morris, Arthur J. , lawyer and banker, Norfolk, Va 717 

Moss, Hon. Ralph W. , Member of Congress from Indiana 69, 889 

Myrick, Herbert, president Orange Judd Co., Springfield, Mass 513, 965 

Norris, Hon. George W. , Senator from Nebraska 915 

Norton, Hon. Patrick D., Member of Congress from North Dakota 952 

Ousley, Clarence, editor, Fort Worth, Tex 405 

Quick, Herbert, editor, Springfield, Ohio 799 

Robinson, Leonard G., general manager Jewish Agricultural Industrial Aid 

Society, New York, N. Y 537 

Ryan, William. A., comptroller, Reclamation Service, Washington, D. C 932 

Scudder, S. D., banker, New York, N. Y 217,438,825 

Shibley, George H., director American Bureau of Political Research. Wash- 
ington, D. C 777 

Southgate, Thomas S. , merchant, Norfolk, Va 650 

Van Cortland , Robert B. , retired banker and farmer 494 

Von Engelken. F. J. H., farmer, East Palatka, Fla 339 

Williams, H. Martin. Washington, D. C 949 

&*kU,. $«*U, " " JU<U~J* . . - - ni J 



30 



RURAL CREDITS. 



FEBRUARY 16, 1914. 

United States Senate, 

Washington, D. C. 

The subcommittees assembled in joint session at 10.30 o'clock 
a. m., Hon. Henry F. Hollis presiding. 

Present: Senator Lee and Messrs. Bulkier, Brown, Stone, Seldom- 
ridge, Weaver, Hayes, Woods and Piatt. 

Present also: Senator Robert L. Owen, chairman of the Senate 
Committee on Banking and Currency. 

Senator Hollis. Senator Fletcher, will you state your connection 
with the subject of rural credits up to this time, for the record? 

STATEMENT OF HON. DUNCAN 17. FLETCHER, A SENATOR 
FROM THE STATE OF FLORIDA. 

Senator Fletcher. Mr. Chairman and gentlemen of the committee: 
As president of the Southern Commercial Congress, I had some cor- 
respondence with Mr. David Lubin, the American delegate to the 
International Institute of Agriculture, with headquarters in Rome, 
Italy, and Mr. Lubin brought this subject to my attention, and I 
invited him to come to our next convention in Nashville, Tenn., in 
April, 1912, to discuss the subject there. 

Mr. Lubin replied that if we would get the consent of the State 
Department granting him leave of absence and assemble representa- 
tives of the different States, and give him a week there, he would be 
glad to come; that he did not feel like he could cross the ocean merely 
to make a speech at the convention. It was a good-sized undertak- 
ing, but we started into do that, and finally we got leave of absence, 
throught Secretary Knox, for Mr. Lubin, and we succeeded in assem- 
bling representatives from 27 States in Nashville; and Mr. Lubin 
came and brought all the data that he had been collecting for years, 
practically ever since he succeeded in establishing that international 
institute of agriculture, which was hi 1905; and they spent six days 
in Nashville, studying the subject there under the guidance of Mr. 
Lubin. 

And at our convention Mr. Lubin delivered his address, and a reso- 
lution was adopted calling on the Southern Commercial Congress to 
assemble a commission, to be composed of two qualified and repre- 
sentative men from each State, if possible, for the purpose of going 
to Europe and studying the various systems in operation in those 
countries for the benefit of agriculture primarily. 

It was a good, big contract, but the resolution was adopted by_ our 
convention, and we went to work to carry it out as far as possible. 
I rather protested at the time that the commission was too large. 

37031—14 1 1 



2 RURAL CREDITS. 

1 thought it would I e difficull to get so man^ together, in the first 
place; and then, in the next place, I thought it would be unwieldy; 
but Mr. Lubin's idea, which 1 think turned out to he a good one, 
was that the purpose would he to educate two capable men in each 
State, and when they saw these systems in operation and observed 
what was going on they would be aide to come lack home and tell 
their people about those systems and keep up the work in that way 
throughout the various States. 

We took the matter up with the National Grange and the Farmers' 
Union and other agricultural organizations, and they approved the 
plan. We then also suggested provisions in the platforms of the 
various political parties as they met, the Republican convention at 
Chicago and the Progressive convention at Chicago, and then we went 
to the Democratic convention at Baltimore; and planks were written 
in the platforms of the parties favoring this plan for investigating 
this subject in those European countries where agricultural finance 
has obtained a high development, and has wrought great benefits to 
the people of those countries, and to agriculture in particular. 

We also took the matter up with the governors of the various States, 
and they were in accord with the idea. We prepared bills for the 
legislatures that met after our convention. Some of the States did 
not have their legislatures meet before the commission had to go, but 
other States did. 

We figured out that it would cost $1,200 for each delegate. And 
we had various applications by people w T ho wanted to go on the trip 
and enjoy the privileges and that sort of thing accorded the commis- 
sion, but w T e wanted men who were seriously bent on working out an 
adaptation, if possible, of those systems to conditions in this coun- 
try. 

And so we were not looking for men who were willing to pay their 
own expenses, but we wanted the States to furnish the money, or 
organizations, farmers' unions, and societies of that kind, so as to 
identify these men with the work, and have them feel that they were 
responsible to these States and to the people of their States, and have 
them go with a determination to accomplish results. 

Some of the States passed special laws — California, Oregon, and 
Washington. I think Ohio appropriated $2,400 for two delegates. 
Some of the governors had funds in contingent accounts which they 
could employ and have provided means in that way. Other dele- 
gates raised the necessary money through the farmers' organizations, 
commercial bodies, and the like. 

So that on the 26th of April last the representatives, including two 
delegates from each of 35 States, left Xew York. I may say that in 
the meantime certain Canadian Provinces had applied for permission 
to join us, and w T c had delegates from five Canadian Provinces as 
members of the commission, and they sailed from New York on the 
26th of April. 1913, and went direct to Rome, Italy, where they were 
received by the King and Queen. 

And in the meantime Mr. Lubin had arranged with the delegates 
to 

Mr. Hayes (interposing). The International Institute of Agricul- 
ture? 

Senator Fletcher. Yes, the International Institute of Agriculture, 
which is participated in by 53 nations, by the way. Delegates from 



RURAL CKEDITS. 6 

these various countries had outlined a program and made arrange- 
ments in advance for this commission. 

In the meantime, there was an amendment put on the agricultural 
appropriation bill, which was approved March 4, 1913, which pro- 
vided for a commission of seven to be appointed by the President, 
to cooperate with this American commission being assembled by the 
Southern Commercial Congress in this study. And that commis- 
sion was appointed, and five of the members of the commission 
joined the American commission in New York, and sailed with them, 
and cooperated with them throughout the investigation. 

Two members of the United States commission, Senator Gore and 
myself, were unable to go on account of the tariff bill and other 
matters pending, and the five remaining members of that commis- 
sion, consisting of Representative Moss, Dr. J. L. Coulter, Dr. Ken- 
yon L. Butterfield, Mr. Harvie Jordan, and Dr. Clarence J. Owens, 
represented the United States commission and, as I say, cooperated 
with the American commission in that investigation. 

Senator Hollis. Senator Fletcher, I understand that it is a fact 
your interest in the subject of rural credits arises largely from the 
fact that you are a member of the Committee on Agriculture and 
Forestry of the Senate ? 

Senator Fletcher. No. 

Senator Hollis. You say it was not on account of your connec- 
tion with that committee that you were particularly interested in 
the subject? 

Senator Fletcher. No; it was largely because of this move- 
ment which originated, as I have stated, with the Southern Com- 
merical Congress, of which I am president. I am not a member of the 
Committee on Agriculture and Forestry. 

Senator Hollis. I thought you were. 

Senator Fletcher. No; I was, however, elected by the American 
commission chairman of that commission, and also elected by the 
United States commission chairman of that commission. 

Senator Hollis. Yes. 

Senator Fletcher. So that, as chairman of both commissions, I 
have been pretty closely identified with the movement. And we 
received reports here in Washington constantly, while the commis- 
sion was pursuing its investigation. Every week we would have 
letters from the members of the commissions in Europe, and we kept 
up with them pretty well in that way. And since then the commis- 
sions have joined in a report which is found in Senate Document 214, 
setting forth these various systems as they found them in operation in 
some 14 European countries. 

That report is not entirely complete. There are other matters r.o be 
submitted by the commission which will form part 2 of that report. 

And then the report of the United States commission is found in 
Senate Document 380, which sets forth our conclusions in regard to 
long-term land mortgage credit; and also there is attached to that 
report the suggested bill which we have submitted, both in the 
Senate and in the House; and the United States commission is now 
at work on the other part of the problem, the short-term or personal 
credit phase. 

Senator Hollis. Senator Fletcher, you have introduced Senate 
bill 2909, entitled "A bill to provide for the establishment, operation, 



4 RURAL CREDITS. 

management, and control of a national rural-banking system in the 
United States, and for other purposes"? 

Senator Fletcher. Yes. 

Senator Hollis. Will you please tell the committee how v<»u came 
to prepare that bill, Senator Fletcher, and all about it \ 

Senator Fletcher. That bill was introduced in August, as I 
recall. 

Senator Hollis. it was introduced August 9, 1913, was it not? 

Senator Fletcher. Yes, sir; and as I stated at the time, of 
course I have been at work on the matter quite actively ever since 
the commission sailed. We had some other material before that; 
for instance, Mr. CahilTs report, which is made a Senate document, 
and which gave me considerable data to work on in that connection. 
I got information and assistance from every source I could from the 
farmer's standpoint. I knew something of the farmer's problems 
from persona] experience and observation. 

Mr. Hayes. Excuse me, Senator Fletcher, but what is the number 
of the Cahill report ? 

Senator Fletcher. The Cahill report is Senate Document No. 17. 
This is it [indicating]. 

And I had be?n studying the subject, with the help of that report 
and other documents; and I introduced this bill as I said, at the 
time, not as the final word on the subject, but »n order to keep the 
subjsct before Congress and before the country as far as possible 
and as being my first impressions regarding the subject. 

Of course that bill Is still pending; and it differs from the bill as 
finally reported by the commission, in some material respects. 

For instance, it provided for the organization of local banks in 
communities by farmers, and then the organization by local banks 
of a State central bank; and the organization of the United States 
central bank, through these State central banks, and the final 
issuing of the bonds by the United States central bank. 

My impression at that time was that that would standardize the 
farm-land bonds and secure a lower rate of interest and a wider mar- 
ket, not only in this country, but abroad, and that the objection to 
central banks as commercial institutions would scarcely obtain, in 
my view, in the case of a central bank of this kind. 

But the commission dealing with the matter thought we ought to 
get away from the central bank proposition, so that the present bill 
as reported varies in that respect from the first bill. 

Senator Hollis. Pardon me. Senator Fletcher, but the second bill 
that ypu referred to was introduced in the Senate January 29, 1914, 
and i^ Senate bill 4246, and the title of it is "A bill to provide for 
the establishment, operation, and supervision of a national farm- 
land bank system in the United States of America, for the creation of 
depositories for postal savings and other public funds, and for other 
purposes." Is that not correct? 

Senator Fletcher. Yes. Another idea, I might say, which I had 
in introducing S. 2909 was that I felt it important to impress as far 
as I could on tin- Senate, and also on the House, what seemed to me 
a fundamental idea that ought to be considered in connection with 
tho then pending Federal reserve act. A certain effort was being 
mad( , as you will recall, to extend the provisions of that act so as to 
me<t the needs of the farmer, and in studying this subject I became 



RURAL CREDITS. 5 

thoroughly convinced that it is utterly impossible to provide in a 
commercial banking system for the requirements of those engaged 
in agriculture. 

Mr. Hayes. Do you not think it would be unsafe to try to do so ? 

Senator Fletcher. Absolutely. And I was a little afraid that we 
were going to try to go too far in the then pending measure in that 
direction, realizing, as of course all Congress did, the importance of 
making these provisions as far as possible to meet the needs of agri- 
culture; yet it seemed to me that some of them were losing sight of 
the principle that commercial banks can not possibly have their funds 
tied up in long-term loans or provide for such accommodations in a 
financial way as the farmer ought to have. 

And for that reason I wanted to get that idea as far as possible 
before Congress. I wanted to make as broad and liberal provisions 
as could be safely made for agriculture, but I felt we needed a sup- 
plemental system to take us all the way. 

Now, perhaps in this matter we should have a starting point and 
gradually lead up to what we have done. 

The act of 1864, establishing our banking system, was based on the 
Ohio statute, and it provided for a commercial system. It was never 
intended to be and is not capable of being made to meet the needs 
of the farmer. 

In the second place, it discriminated against him by prohibiting 
loans on real-estate security. The effect was to place a ban on real 
estate as a basis of credit. This being the farmer's chief asset, the 
system absolutely discriminated against him in its operation. 

The result has been that the farmer has been obliged to depend 
upon the factor, the merchant, and the money lender to obtain what 
accommodations he required, and to make the best financial arrange- 
ments that he could; with the further result that high prices were 
charged him, enormous profits were made at his expense, and bur- 
densome interest charges and exactions were put upon him; and 
with the result, further, that his earnings were largely consumed in 
that way. His net returns were small, and with no prospect of 
growing larger. 

Discouragement faced every young man growing up on the farm; 
hard work and the most meager remuneration were in store for 
him. It was impossible to improve rural conditions; there was no 
money to do it with. No wonder occupying owners decreased in 
number and tenants increased, and a steady flow set in to the cities 
and towns. The greatest and most important industry of the coun- 
try, the one upon which we all depend for our food, clothing, and 
shelter, was not merely neglected and left unprovided for, as far as 
our financial system was concerned, but was given a severe blow 
and discriminated against. 

Strange to say, this has been continued all these years until the 
good year 1913, and until the passage of that great measure, to my 
mind unsurpassed in importance and benefits to the country by any 
law put on the statute books since the War between the States — the 
Federal reserve act. 

Now, there is no longer that ban on real estate as to loans by 
national banks. Now the farmers have some opportunity to get 
personal accommodations in the way the nature of his business calls 
for. To be sure, this is limited. No commercial system can be 



D RURAL CREDITS. 

made to moot tho requirements of agriculture. The commercial 
bank must be ready lo respond to all of its liabilities on demand, 
and therefore can not have its deposits or its capital and surplus 
tied up on loans on real estate running for years; neither can it have 
its funds invested in securities which can not be readily converted 
into cash. 

Consequently while tho Glass-Owen Acl (oi tho Federal reserve 
act) goes as far as can be safely gone in providing for loans on real 
estate and for redisoounting six-months' paper, there is a very con- 
siderable and very important ground not covered by our banking 
and currency system, even as amended. 

1 therefore believe that in order to meet the needs of our farmers 
and provide for the necessary requirements of agriculture in a financial 
way we must supplement existing systems by providing for a system 
of farm-land banks, so empowered, supervised, and managed that 
the credit resources of the farmers can be made available, to the 
end that money can be got at cheaper rates, on long terms, with the 
privilege of paying on account of the principal as the interest is paid, 
for the purpose of acquiring homos, improving and developing the 
farm, and discharging existing liens drawing unreasonably high rates 
of interest. In addition to this, a further system of rural credit 
banks intended to promote cooperation and enable the members 
to utilize their collective credit resources to meet the temporary needs 
as they recur in producing the crops, would be most advantages. 

Neither of these needs is fully met by the Federal reserve act. In 
the first place, the amount allowed to be loaned on real estate is 
wholly insufficient to give full relief to the farmers. There would 
probably be available for five-year loans on real estate some 
$200,000,000 under that act. The farmers of the country owe some 
$6,000,000,000, nearly half of which is secured by morgtages on their 
land. You can readily see that there is a very wide gap between 
$200,000,000 and $2,000,000,000. 

Senator Hollis. Do you not mean $6,000,000,000? 

Senator Fletcher. I just named $2,000,000,000 as the amount 
secured by mortgages on land. 

Senator Hollis. Yes; I see. 

Senator Fletcher. This gap should be abridged. Not only that, 
but our farmers are in need of more money for development purposes, 
and it would be in the nature of an investment rather than incurring 
a debt, if they could get it at sufficiently low rates of interest and have 
the privilege of paying back it out of the earnings of the farm from 
year to year. 

Mr. Weaver. May I ask you a question, Senator Fletcher? 

Senator Fletcher. Yes; certainly- 

Mr. Weaver. Do you think that these commercial banks are going 
to lend the 8200,000,000 to the farmers? Now, while the law allows 
them to do that, it is a matter of option with them, and they are not 
compelled to do so; do you think, as a matter of practice, that they 
will loan the money to the farmers on five years' time? 

Mr. Hayes. On real estate? 

Senator FLETCHER. I doubt if there will be much money loaned in 
that way. 

Mr. Hayes. Do you think there will be any I 



RURAL CREDITS. 7 

Senator Fletcher. But the main thing is that that provision 
does away with the idea in the original banking act that real estate 
is not a proper security for loans. 

Mr. Hayes. Well, for commercial loans, would you not agree with 
that proposition that they are not proper security for commercial 
loans ? 

Senator Fletcher. Yes; I think there is something in that, but, 
at the same time, I believe that the effect of the prohibition in the 
law was harmful to the farmers of the country, because, naturally, 
money lenders and financial institutions would feel that if the Gov- 
ernment itself provided that institutions operated, controlled, and 
supervised under its direction should not accept real estate as security 
it threw a sort of suspicion on it with other people, and they charged 
higher rates of interest, and all that sort of thing, whenever they did 
make loans on real estate. 

I quite agree that there is a very grave doubt whether a great deal 
of money will be available to the farmer under that plan; but still 
it is a long step in the right direction. 

This consideration ought to be shown the 12,000,000 people 
engaged in that industry — I mean the consideration of allowing 
them to have the privilege of paying back these loans and getting 
their money at reasonable interest. But we need credit provision 
for considerably more — also for development purposes — than the 
present debts of the farmers. 

Objection is sometimes urged that we are finding a way to make 
it easy for the farmer to go in debt. There can be no kind of doubt 
about his being already in debt. 

Let me read you what Judge Horace Bagley, of Towner, N. Dak., 
says. He has taken great interest in this subject, and I appreciate 
his suggestions and views. We had considerable correspondence, 
and he sent me this statement, which speaks for itself. I got his 
permission to use it, and I submit it here as an illustration of con- 
ditions in this country, which are by no means confined to North 
Dakota. There are three letters from Judge Bagley, which I would 
like to insert in the record as a part of my remarks, including a 
statement from him as to conditions in North Dakota. I will not 
stop to read them unless the committee so desires. 

The main thing is, he says, the debts of the farmers in that county, 
which, he says, is typical of that part of the country, are about equal 
to the assessed value of the farmers' property, and they are paying 
very large interest charges on the debts which they have. 

Senator Hollis. These letters will be incorporated in the record 
as a part of your testimony, Senator Fletcher. 

(The letters referred to are as follows:) 

Towner, N. Dak., August IS, 191S. 
Hon. D. U. Fletcher, 

Washington, D. C. 
Dear Sir: I have followed with great interest and pleasure your efforts on behalf 
of a better system of rural credit. I take this opportunity to assure you that your 
labors are appreciated in this far Northern State fully as much as they can be in Florida. 
A long experience as a country banker and as a farmer convinced me years ago that 
the rural problem is purely an economic one, the solution of which lies along the lines 
you are so ably following. 
Yours, very truly, 

Horace Bagley, 
County Judge, McHenry County, N. Dak. 



8 RURAL CREDITS. 

Towner, N. D., August 28, 191S. 
Hon. Duncan U. Fletcui b, 

United States Senate, Washington, D. C. 

Dear Sir: In reply to yours of August 18 in the matter of rural credits, I inclose 
you herewith a set of ligures prepared by me relative to the above matter, as the 
same applies to our local situation. I think the situation in McHenry County is 
typical of the general situation throughout central and western North Dakota. 

The figures as 1 give them are either official or are based on a careful estimate. 
Abstracters and others to whom I have shown them, agree that the totals are under 
rather than over the actual amounts. I have taken $1,000 as the average first mort- 
gage real estate loan. The abstracters inform me that a loan of this size has been an 
exception for the past three years, and that the average now is between $1,500 and 
$2,000. 

The amount due local banks is taken from the August 9 reports, as published in 
the local papers, and indicates that my estimate of chattel mortgage indebtedness 
at $2,500,000 is conservative. Practically all the indebtedness due banks is secured 
by chattel mortgages. And in addition to such bank indebtedness is the very large 
sums due the machine companies, horse dealers, local merchants, and money loaners. 
In my opinion, the present indebtedness, other than real-estate mortgage indebted- 
ness, is close to $3,500,000, and $2,500,000 is the amount thereof upon which interest 
is annually paid, the $1,000,000 representing the sum which will be liquidated this fall. 

These figures indicate, of course, that many of our farmers are past all help by any 
scheme of credit. But a very large number of them are still solvent, and will gladly 
and successfully make the needed change to a better system of farming if they can 
secure credit on anything like a reasonable basis. If the present system continues, 
it is perfectly evident that the bulk of these still solvent farmers will likewise fall 
into the same bottomless pit as their fellows. 
Yours, very truly, 

Horace Bagley. 

[Inclosure.] 

Statistics relative to mortgages and other indebtedness, McHenry County, N. Dak. 
[Compiled from official records of said county, Aug. 22, 1913.] 

I. 

Population, 1910: 

Total 17, 627 

Rural 14,757 

Families, 1910: 

Ratio to population per cent . . 5. 6 

Total 3, 147 

Rural 2, 635 

Acres assessed for taxation, 1912 1, 132, 248 

Assessed valuation, farm lands. 1912 $4, 852, 509 

Average valuation per acre, 1912 $4. 28 

Assessed valuation, personal propertv, 1912: 

Total $1, 380, 888 

Rural $1, 010, 076 

Average assessed valuation, per rural family. L912, total $2,225 

II. 

Real estate mortgages recorded. Aug. 22. 1907, to Aug. 22, 1913 12, 359 

Real estate mortgages of record Aug. 22, 1913 > 9, 269 

First real estate mortgages of record. Aug. 22, 1913 '4, 634 

Average amount first real estate mortgages > $1, 000 

Total first-mortgage indebtedness '$4,634,000 

Average first-mortgage ind<-btednesB per rural family |1, 758 

Average interest rate per annum, first real estate mortgage per cent. . 0. 09 

Total interest paid per annum, first real estate mortgage $411, 114 

Average annual interest paid per rural family, real estate mortgage $158 

' Estimated. 



EURAL CEEDITS. y 

III. 

Chattel mortgagee filed Aug. 22, 1907, to Aug. 22, 1913 39,116 

Chattel-mortgage indebtedness Aug. 22, 1913 . . ' $2,500,000 

Average chattel mortgage indebtedness per family $794 

Average interest rate perannum, chattel-mortgage indebtedness. per cent. . 0. 12 

Total annual interest paid per annum, chattel-mortgage indebtedness $300, 000 

Average annual interest paid per total family, chattel-mortgage indebted- 
ness $95 

IV. 

Number national banks, McHenry County 2 

Number State banks, McHenry County 25 

Total bank capital, McHenry County $397, 000 

Total bank loans, statement Aug. 9, 1913 2 $1, 938,000 

Average indebtedness to banks per family $615 

V. 

Total real estate and chattel-mortgage indebtedness $7, 134, 000 

Total average real estate and chattel-mortgage indebtedness, rural $2, 552 

Total average interest paid on all indebtedness, per annum, rural $253 

Average cost renewing real estate mortgages $10 

Total cost renewing real estate mortgages, 6 years $46, 340 

Annual cost renewing real estate mortgages $7, 772 



Towner, N. Dak., September 5, 1913. 
Hon. Duncan U. Fletcher, 

United States Senate, Washington, D. C. 

Dear Sir: Yours of September 1 in re rural credits plan at hand, and I thank you 
for the same. 

I shall be glad to have you use the data I sent you in any way you see fit. I believe 
it is, on the whole, entirely reliable and will bear investigation. 

Not only are our farmers not accommodated with loans at the time and in the 
amounts they need them, but such loans are looked upon by the average banker as 
a great favor to the farmer and are only extended upon the terms and in the amounts 
the banker sees fit. 

I have taken the first 50 mortgages filed on and after November 1, 1912. and find 
that in such 50 mortgages the crop was given as security in 26, machinery in 16, 
cattle in 12, and horsesin 23. I have taken the first 50 mortgages filed on and after 
April 1, 1913, and find that the crop was given as security in 11, horses in 31, cows 
in 12, and machinery in 14. It is obvious that the proportion of crop security fell off 
in the April mortgages for the reason that such security was exhausted and would be 
worthless. 

Several years ago I became acquainted with the German and Danish cooperative 
credit systems through our farmers of those nationalities and have been greatly inter- 
ested in the subject ever since that time. In 1912, I spoke to an audience of over 
3,000 people at a farmers' picnic, for nearly an hour upon this subject and aroused 
great interest. Inquiries have been coming pretty steadily since that time, and num- 
ber of substantial farmers in various townships have offered to take the initiative in 
the organization of township banks. 

You and I both realize, of course, the difficulty of organizing farmers' cooperative 
societies of any kind. The first step in the successful organization of such societies 
is financial independence. Your bill seems to furnish the material for securing such 
independence, and I believe it can and will be used for that purpose. 

I have distributed the envelopes which you sent me and can use more of them to 
good purpose. 

Yours, very truly, 

Horace Bagley. 

i Estimated. 

2 Practically all bank indebtedness is secured by chattel mortgages and is included under IIT. 



10 RURAL CREDITS. 

Senator Fletcher. Judge Baglev gives a list of the mortgages 
from the records in his county and from other data, which I think 
quite material as illustrative of the point as to the present condition 
of tho farmers. 

1 have here letters from nearly every State, which would make a 
voluminous record if printed, showing that the farmers to-day are 
paying all the way from 6 per cent per annum to 2 per cent a month 
interest on tho money they need to borrow — when they can get it at 
all. 

In the Eastern States and the middle Northwest farmers can get 
loans on their farms at times as low as 6 per cent per annum, but 
they must make the note secured by the mortgage payable on demand 
or at some short period within winch it would be impossible for them 
to earn it. 

Senator IIollis. If you will pardon me, Senator Fletcher, I would 
like to interject that in my State we have a law recently passed that 
exempts from taxation mortgages on New Hampshire land at a rate 
of 5 per cent or less. That has resulted in putting the rate of interest 
on real estate loans down to 5 per cent in all our savings banks, and 
as a result it has done great good. I will say that all mortgages are 
taxable and the land also is taxable; that is pretty close to double 
taxation, but that is the rule in my State. 

Senator Fletcher. Yes. May I inquire if those mortgages are 
for any great length of time, or are they payable on demand ? 

Senator IIollis. They are almost invariably payable on demand; 
but our savings banks are mutual savings banks and the deposits 
come largely from the same population that borrows; and I have 
never known a farmer to be foreclosed without being given ample 
opportunity. In fact, I have not known any of the farmers to be 
foreclosed. I am a trustee of a savings bank with $12,000,000 de- 
posits, a pretty large mutual savings bank. We contribute our 
services free, all the officials except the treasurer and the secretary. 
And while the notes are made payable on demand, I have never 
known any foreclosure to be made. So it works out very well in our 
section of the country. 

Senator Fletcher. Well, of course, it would be very risky for 
farmers generally to have their mortgages payable on demand; and 
whereas there may not be foreclosures — of course the banks are 
interested in having their funds out at interest — still it is in their 
power to foreclose, and for that reason it does not quite meet the 
situation, it seems to me. Even though the interest rate is low, 
there are disadvantages to the farmer in that system. 

Senator IIollis. And I will say, in addition, Senator Fletcher, 
that our banks do not like to loan on local farm lands; they seem 
very much to prefer to loan on western farm lands, where the loan 
comes through some agent, to accommodating the local farmer. 

Senator Fletcher. Yes 

Senator IIollis. I have myself noticed that. And I have myself, 
in a number of cases, insisted that they must loan to the local farmers 
if the security was good. Of course, there is that disadvantage. 

Mr. Platt. Your mutual savings banks are not allowed to loan on 
western mortgages, are they '. 

Senator IIollis. Yes, they are in my State 



RURAL CREDITS. 11 

Mr. Platt. They are not allowed to do so in my State. Our mort- 
gages are all made on local farm lands and run for two or three years, 
but they allow them to run on indefinitely. They are never fore- 
closed, at least very rarely. 

Senator Fletcher. Again, the farmer must pay for the abstract, 
drawing the papers, commissions to agents, and the like, averaging 
about 2 per cent more. 

A letter from Missouri gave an actual transaction which the writer 
recently had, showing that a farmer wanted to borrow $1,000 and that 
his farm was worth $10,000. The loan was made through an agent, 
and the net amount the farmer received was $908; and $92, nearly 
10 per cent, went for commissions and expenses. 

A letter from Oklahoma says that farmers pay 2 per cent a month 
as interest and often can get no money for operating purposes at all. 
These are not exceptional cases. 

We must stop this discrimination against the foundation of all our 
industries. We must provide a means for utilizing their credit 
resources, and making their assets liquid. As Mr. Lubin would say, 
give them the dynamic dollar instead of the static dollar. We must 
provide a way for relieving the burdens on our farmers of excessive 
interest charges, expensive machinery for obtaining accommodation, 
and of the difficulties often insurmountable, of supplying their proper 
and legitimate needs. 

Think of an industry enduring such burdens all these years, and 
suffering such discrimination, and accepting such denials, in which 
nearly one- third of our population is engaged, which has assets 
estimated to be worth 40 billions of dollars and yielding annual 
products worth nearly 10 billions of dollars on the farm. 

Very properly our farmers insist that they have endured and have 
been patient long enough. They are entitled to be fairly considered 
in the financial scheme of the Nation. 

The commission appointed by the President to study this subject 
and get all the light on it possible, from the experience and practices 
of the older countries of Europe, believes that it has a plan which is 
sound in principle and workable in practice for supplying the capital 
requirements, the investment needs of the farmer, involving long- 
term low interest and an amortization feature. I now refer to 
Senate Document 380. 

Senator Hollis. Senator Fletcher, just a moment. As long as 
these hearings are to be published, and we want them to be as useful 
as possible, will you not explain right there, for the benefit of readers, 
what amortization is ? 

Senator Fletcher. Amortization means the payment on account 
of principal at the interest periods. 

For instance, we will say that under this bill, if the bonds provide 
4 per cent interest — or rather, if the farmer is to pay 4 per cent inter- 
est — there is provision made for not exceeding 1 per cent for adminis- 
tration charges by the bank. In Europe, I believe, that is a good 
deal less. In some countries, probably, it is as low as 0.35 of 1 per 
cent, and probably generally will not exceed 0.60 of 1 per cent. We 
provide that it shall not exceed 1 per cent here, covering all expenses 
of administration. 



JL2 RURAL CREDITS. 

Then there is a provision here that the mortgage shall show pre- 
cisely what the farmer is to pay in the way of interest, in the way of 
expenses, and in the way of amortization. That is, suppose he pays 
0.50 per cent for amortization. That applies on his principal. It 
differs from a sinking fund that is ordinarily provided for taking care 
of bonds in that the amortization payment is credited on the mort- 
gage when it is made, so that there is not any doubt but what the 
farmer receives credit for that payment on the principal at the time 
it is made; that is wherein it differs from the ordinary sinking fund. 
It is a payment on the principal at the interest period of whatever 
amount may be agreed upon. Perhaps he will pay 1 per cent on the 
principal. Of course, the whole thing will be paid oft in a less time 
the more he pays for amortization. 

Xow, we propose to follow this with a report and recommendations 
respecting the personal or short-term credit for temporary or recur- 
ring needs. This will be based upon the principle of cooperation, the 
utilization of the collective credit resources for the benefit of each. 

The subject divides itself into two great phases: 

First. To provide long time, or land mortgage credit, to take care 
of the farmer's capital requirements, such as completing the purchase 
of the farm, improving and equipping the farm, and paying off 
existing liens. 

Second. Short-term or personal credit, to take care of the tem- 
porary requirements for preparing the land and cultivating the crops 
and harvesting them. 

The first is the primary step to improve our agricultural conditions, 
and precedes, naturally, the development of personal credit. 

The establishment of a system of farm-land banks is a means for 
accomplishing this purpose. 

Since Senate Document No. 380 is accessible to all, what I might 
say on that subject in a general way would be largely a repetition of 
what is there set forth, and I take it that all I should do is to draw 
your individual and careful attention to what is there said. 

In the introduction, Part I, page 9, the discussion of "land mort- 
gage or long term credit," Part II, page 15; the statement inter- 
Ereting the accompanying bill, page 27; the detailed review of the 
ill, page 34; and the bill itself, pages 53 to 73. 

Now, there are some views of a minority of the American com- 
mission which are quite pertinent and suggestive which, if the com- 
mittee pleases, I will submit for incorporation in your record. They 
are not yet published, but are sent to me as chairman of both com- 
missions. I do not know whether the committee cares to do that or 
not. 

Senator IIollis. If you think that will be useful, Senator Fletcher, 
it will be incorporated in the record. We are inclined to accept your 
judgment on that. 

Senator Fletcher. These minority views are submitted by Mr. 
Gordon Jones, Mi-, von Engelken, and some other members of the 
American commission. Dr. Coulter, do you know how many signed 
that minority report ? 

Dr. Coulter. I think there were 8 or 10. I have a letter from 
Mr. Gordon Jones, stating that he wants to make two or three minor 



RUKAL CEEDITS. 13 

corrections in that report, and that he will forward a corrected oopy 
of it as soon as he can. 

Senator Fletcher. Well, some 8 or 10 members of the American 
commission submitted this minority report. 

Senator Hollis. Then such matter as you may hand to the sten- 
ographer in this connection, Senator Fletcher, will be printed as a 
part of these hearings. 

Senator Fletcher. Of course, it is understood that these gentle- 
men who signed these minority views are members of the American 
commission, hot of the United States commission. The United 
States commission are united in their report, as shown in Senate 
Document 380. But I thought it might be well to insert in these 
hearings the views of these 8 or 10 gentlemen on the Ameircan com- 
mission, as throwing light on the subject. 

Mr. Gordon Jones is a banker of Denver, Colo., and Mi-, von 
Engelkan, of Florida, is a native of Germany, a highly educated and 
capable man and quite familiar with conditions both in Germany 
and in this country; he is a farmer. And I feel like getting all the 
light we possibly can from every source, whether it is favorable to 
my bill or to the commission bill or any other bill is immaterial to 
me; what I want is light on the subject wherever I can find it; and 
I think it would be well, if the committee agrees, to put this in as the 
views of those gentlemen on this subject. They went to Europe, 
and they studied the subject along with the other members of the 
American commission. 

Mr. Bulkley. Has there been submitted any majority report of 
the American commission ? 

Senator Fletcher. The American commission has not submitted 
any bill at all; they decided not to submit a bill; but their report is 
found in Senate Document 214. 

Mr. Hayes. That is a very voluminous document. 

Senator Flecher. Yes; and that will be followed up by some 
further observations and additional data; but they have not recom- 
mended any bill; they decided not to recommend any bill. 

Mr. Weaver. When will we get that supplemental report? 

Dr. Coulter. That has already been provided for; 261 is now in 
final page proof, and can probably be printed to-day. 

Senator Fletcher. That will complete, then, the American com- 
mission's report — Document 214. 

In addition to that, I have a letter here from Col. Ousley, of Fort 
Worth, Tex., who was a member of the commission. 

Mr. Weaver. Is that Clarence Ousley? 

Senator Fletcher. Yes. 

Mr. Weaver. He is a newspaper man. 

Senator Fletcher. Yes. He was dealing in this letter with my 
bill (S. 2909) which I had asked him to criticize; and he has made 
some valuable suggestions on the subject; and it is not a very long 
letter, and if the committee would permit it to be printed, it might 
add something of considerable value. 

Senator Hollis. The letter will be printed in the record at this 
point. 



14 RURAL CREDITS. 

(The letter referred to is as follows:) 

Fort Worth, Tex., August 27, 191S. 
Senator Duncan U. Fletcher, 

Washington, D. C. 

My Dear Senator: I have just had time since my return to carefully consider 
your bill providing for a national rural-bank system. 

I heartly approve the general idea, and in responding to your invitation for "criti- 
cism and suggestion," I make bold to submit the following thoughts: 

Page 14, under the title "Real-estate loans," you provide that the rural bank may 
lend an amount equal to its capital, surplus, undivided profits, and 50 per cent of 
its time deposits on land mortgages. On page 27, you provide that the rural bank 
shall invest an amount equal to 10 per cent of its combined capital and paid-in surplus 
in the national rural bank and 20 per cent in the State national bank. Are not these 
sections at cross purpose? Besides, I doubt the wisdom of allowing the rural bank to 
lend so much upon farm mortgages. In many sections of our country, where land 
values are uncertain and there is a tendency to speculation and exploitation, I fear 
that some banks would be organized for the particular purpose of developing real 
estate and that there would be serious damage as a result of collapsed booms. 

On page 16 and elsewhere you provide that loans on real estate shall be 60 per cent 
of the value at which such real estate is assessed for taxation. In many sections of 
Texas, and I doubt not of other States, lands are assessed at scarecly more than half 
their market value, and in some instances, indeed, at considerably less than half their 
market value. In such cases the limit of loan would be too low for practical purposes. 
My opinion is that it is sufficient to limit the loan to 60 per cent of appraised value, 
but to require appraisement to be made under very rigid rule and to be verified ana 
approved by some Government official or officials not connected with the bank. 
Appraisements are made in this manner by the Prussian Landshaften. That is to 
say, the appraisement by a committee of the Landshaft is subject to revision by a 
government official acting independently and having no relation whatever to the 
Landshaft. 

On page 21 you provide- that loans on farms shall be made "in so far as practicable" 
only for improvement, equipment, or increasing the value of the property. In my 
judgment you should make this condition absolute by striking out the words "in so 
far as may be practicable." I think there should be no opportunity whatever for rural 
banks to bo persuaded to make loans on anything but improvements or part of the 
purchase price. Our people are not yet conservative enough to exercise such discre- 
tion as your bill allows, but they are likely to be tempted into making loans for other 
than the real purpose of the bill. 

On page 30 you provide that the ownership of stock of the State bank shall be 
exclusively in the local banks. I submit for your consideration whether it would not 
be wise to permit a minority of the stock to be owned by private individuals and to 
safeguard the institution from selfish uses by requiring that the majority of the stock 
shall be owned, by the local banks. I apprehend that in the establishment of this 
system it will be necessary to secure much money from private sources. I think there 
are many men in the country who would be willing to contribute with the hope of a 
reasonable profit, and many cities would contribute stock in order to secure the loca- 
tion of the State bank. The same suggestion may be applied also to the national bank 
or the central bank. 

I doubt whether it would be necessary for the entire board of governors to receive 
such liberal salaries as are provided on page 44. I rather think that it would be suffi- 
cient to compensate the president and the vice presidents and to make a modest 
allowance for other members of the board of governors. 

If the Congress can be persuaded to appropriate any money whatever for invest- 
ment in the national bank, I suggest that the amount should be at least a million dollars 
instead of the £500,000 as you provide. It will be a mistake to undertake to establish 
such a system with a small amount of money. I suggest also that ample provision 
should be made in the bill for organizers of local and State banks. It will take a tre- 
mendous effort by many skilled and efficient men to organize these institutions, and 
it is my opinion that such organizers should be engaged for a period of two to five years. 

I congratulate you upon making the effort, and, while I presume you hardly hope to 
succeed at th<> present session of Congress, we must make a beginning, and the sooner 
we make it the better. 
Yours, truly, 

Clarence Ousley. 



RURAL CREDITS. 15 

Senator Fletcher. Of course, I have not specific authority for 
offering either of these; but I do so, as I think it will be well, as I said, 
to have all the light on the subject we can. 

Now, if the committee should be interested further in my views, 
expressed more in detail and supplying certain material relating to the 
subject, I may be permitted to refer to a speech which I made in the 
Senate August 14, 1912; another one made in the Senate August 9, 
1913; and another one to the conference of governors (S. Doc. 177), 
and also one which will be found in the Congressional Record of 
January 29. 1914. 

Senator Hollis. Permit me to interrupt you there, Senator 
Fletcher. I think it would be useful to have at least one of these 
addresses of yours — the one that you think covers the subject best for 
this purpose — made a part of the record. I should like to have it in 
the record. Will you give to the stenographer such material of that 
sort as you think ought to go into the record. 

Senator Fletcher. I will, Mr. Chairman, if it is desirable. But the 
record of these hearings will show the references to those speeches, so 
that any of the members can read them if desired. I thought that 
would save printing in the record: but the committee may do as it 
likes about that. Perhaps it would serve to furnish extracts from 
those speeches mentioned. 

(The papers referred to are as follows:) 

[Extracts from speech of Hon. Duncan U. Fletcher, of Florida, in the Senate of the United States, Aug. 

9, 1913.] 

National Rural Banking System: Its Establishment, Operation, Manage- 
ment, and Control. 



as affecting agriculture. 

While the pending legislation is most desirable, it does not, can not, and no amend- 
ment to it could be made to, supply the great and pressing call for financial consid- 
eration by agriculture. 

In the past Great Britain bent her energies developing her industries and her 
commerce. 

Germany realized she must provide food for the people, including her army, and 
she looked after agriculture as well. In consequence, Germany has the most com- 
plete financial system aimed to benefit agriculture and under which her farmers 
prosper, and without which they would have perished. Raiffeisen heard the call 
in 1849. The Landschaften and other plans were evolved. They are quite distinct 
from ordinary commercial banking institutions. 

In recent years England has endeavored to remedy her oversight. Her states- 
men and economists saw the trouble, and legislation has been enacted in the inter- 
est of agriculture. 

But the most marked example of the successful application of the German idea 
to local conditions is found in Ireland. In the days of absent landlordism and 
tenancy that country was noted for the poverty, distress, intemperance, and dis- 
content of its people and the prevalence of crime. Since the efforts of her patriots, 
resulting in the act of Parliament constituting the development commissioners in 
1900, whereby the Government, by its credit of 11,000,000,000, has made it possible 
for those who work the land to own it, there is bounding hope, general prosperity, 
contentment, and progress on every hand, and the jails are turned into schoolhouses, 
and the Irish lad no longer hurries from the farm. Under the leadership of suv.u 
economists as Sir Horace Plunkett there has come about a real rural reconstruction. 
It is because by some wise consideration shown those who till the soil, enabling 
them to have a fair and square chance — and they have never asked special favor 
or special privileges — life on the farm is being made, as it must be in every country, 
if that country is to prosper, conspicuously comfortable, intellectually interesting, 
and socially satisfying. 



16 RURAL CREDITS. 

We must mil get into Ireland's former condition. 

Statistics show there lias been an increase of tenants on the farms of this country 
of some 12 per cent since 1880, a decrease of occupying owners in that period of 14 
per cent. The exodus from the farm is increasing — our exports of food products 
rapidly decreases. Soon, at the present rate, we shall not be producing sufficient 
to Bupply the home demand. For instance, while our population has increased 
9,000,000 since 1907, the number of cattle has decreased 16,000,000. Yesterday 
900,000 pounds of beef from the Argentine Republic was delivered in Washington. 
The shipment came from Buenos Aires via Liverpool, and the time required was 
85 days. 

It may be claimed that section 27 of Senate bill 2639 will serve the farmer. To 
a degree it will be of benefit, but it does not approach ample provision. It removes 
the ban on real estate as security heretofore existing, but the farmer can not return 
his capital in nine months. This would give but temporary short-time accommoda- 
tion. What the farmer wants is long-time loans at a low rate of interest, with amor- 
tization feature. In this way he can acquire a home, improve his property, develop 
his industry, and out of the annual proceeds pay off the debt by installment reductions. 



COMMERCIAL BANKING SYSTEM NOT SUFFICIENT. 

You can not provide for that in any commercial banking scheme. You must have 
a separate plan. In nine months he might be able to meet obligations incurred for 
temporary needs — for supplies to enable him to produce the last crop — but that is 
but a small addition to the avenues now open to him for that purpose. Besides, the 
Senator from Oklahoma [Mr. Owen] estimates this section would make available for 
loans on real estate some $250,000,000. This is an insignificant sum compared to the 
demands of that great industry. How great it is may be understood when we reflect 
that over 10,000,000 of our people are directly engaged in it and over 30,000,000 are 
on the farms and supported by them. Furthermore, that the value of the products 
on the farm last year were $9,400,000,000, and it is estimated that one-third of these 
were consumed on the farms, leaving the remainder to be marketed and for which 
the consumers paid over $13,000,000,000. Further, our farmers owe some $5,000,- 
000,000, nearly three billion of which is secured by mortgages on the land. What 
would two hundred and fifty million amount to when it is a question of properly 
taking care of that three billion, say nothing as to the other two billion secured by crop 
liens and due local merchants? 

I realize that in some portions of the country the farmers are lending money to the 
banks, enjoying automobiles and other luxuries. There are many other portions where 
the farmer is having a hard and miserable existence. Excessive rates of interest, 
inability to get capital, lack of credit, or other difficulties in no few districts prevent 
his getting a direct return from his toil, strive how he will. 

STATUS OF AGRICULTURAL AND RURAL LIFE. 

We must take the average, as we must deal with the average man in all our calcu- 
lations. We find that the average farmer earns, gross, $700 per annum — less than $2 
per day. With this he must support his family, educate his children, meet medical 
bills; then he can buy barrels with which to store away the remainder. 

There seems to be two theories advocated by earnest, conscientious, able thinkers, 
respectively: 

Mr. David Lubin contends the farmer is "behind the times in the United States 
* * * because he has no cash, no open account. Give him that, and he will have 
the rest. It therefore follows that the American commission should first of all find 
out why the European farmer has cash, has open accounts, and why the American 
farmer has not. Having found out the why, it will be easy enough for the American 
farmer to build up the structure he should have so as to adapt himself to the needs 
of the twentieth century and in conformity with the progressive modes in operation 
in the United States in all other fields of activity." 

Sir Horace Plunkett, the Irish patriot, economist, and publicist, says: 

"I hold strongly that until farmers have fallen into line with the economic system 
of your and our countries by organizing their business they can not themselves 
know the character of the security they have to offer, and therefore will not have credit 
to get cash adequate for their requirement." 

He insists upon dealing with ''the problems of rural life in its entirety" rather than 
restricting our efforts "to the financial aspect of the problem." 



RURAL CREDITS. 17 

As I understand, he contends that we must first get the farmer ready to utilize 
credit. He must organize cooperative societies, combine with his neighbors, prepare 
himself and his undertaking in order to make effective and economical use of the 
credit which will come to him, and then a system may be devised whereby he can 
economically finance all his operations. 

Both aim for the same goal; both wish to accomplish the same ends; the difference 
appears to be in methods or means. It seems to me both may be right ; that the result- 
ant, rather, the middle course, would be nearer the true and the wise course. In 
other words, let us proceed with both developments at the same time — cooperation 
to better rural conditions and financial arrangements pari passu. 

* * * * *■ # * 

The farmer must always be the foundation, but that doe? not mean he must be kept 
beneath the surface. 

The rewards of his labor are too meager. Experts say, upon an average, the farmer 
gets only 35 cents of the consumer's dollar. The cotton grower gets the largest pro- 
portion of what the consumer (meaning the manufacturer) pays, 70 per cent. The 
vegetable and fruit grower get the smallest per cent, 20 per cent. This is because cotton 
passes through fewer hands. He pays high prices for the things he buys. He pays 
tribute to the manufacturer, the middleman, and the financier. The poorest preach- 
ers the church sends to the country meeting houses. The most inexperienced and 
inefficient teachers the State sends to the country schools. About the cities and 
towns the paved roads are found. There is need of centers for business and social 
gatherings in order to make rural life more richly enjoyable and humanely interest- 
ing. Farming must be made more remunerative. The returns do not warrant good 
wages, hence the lowest wage is given to farm labor, and hence, too, its decreasing 
quantity and quality. The farmer receives less for the hours he spends in toil than 
any other worker. His work is unceasing — is never done. Yet Adam Smith stated 
the fact that "all wealth comes from labor applied to land." 

The primitive values are food and shelter. There is much talk about universal 
peace— build up a contented and prosperous husbandry and you make the greatest 
stride in that direction. The farmer is for peace; he is never a despoiler. He brings 
on no wars, although, like the hunting-shirt men under Jackson, he does the best 
fighting when it needs to be done. 

We talk about world disarmament. Let a nation produce a surplus of prime neces- 
sities of life which other nations must come to it to obtain or go hungry and unclothed, 
and you have a nation in position of supreme power. 

I would encourage, not undermine, the policy of self-help and individual initiative. 

But something must be done to give this oldest and really only absolutely necessary 
industry its proper place in the Nation's economy. 

We know that about 1880 the cooperative movement for the benefit of agriculture 
became very active in Germany, Italy, Denmark, France, and other continental 
countries. 

Sir Horace Plunkett and a Jesuit priest, Father Finlay, just from his studies in 
German universities, organized the pioneer society of agricultural cooperation in 
English-speaking countries, the Irish Agricultural Organization Society, which has 
brought into existence all the present societies, combining 100,000 Irish farmers, 
giving an output valued at £2,500,000 annually. They apply the cooperative prin- 
ciple to agricultural production, distribution, and finance. 

In sporadic instances that course is pursued in the United States. I have been 
informed that a cooperative society about Summerville, S. C, saved last year to its 
members $7 per ton on the fertilizers the members used. 

EXPERIENCE IN OLDER COUNTRIES. 

The three causes which revolutionized Irish farming are given as: Land purchase, 
whereby the farmer became the owner of the land; technical education, whereby he 
was taught to do better farming; and agricultural cooperation, whereby business 
methods were applied to the industry and the produce was disposed of to the best 
advantage. The Irish Agricultural Organization Society has successfully demon- 
strated that the cooperative system is capable of enabling the farmer to produce and 
distribute efficiently and economically, and at the same time to finance both these 
operations. Credit societies have been formed as auxiliary to the cooperative society. 

There are some 200 rural banks in Ireland. One of the first forms of cooperation on 
the Continent, and the most useful, was cooperative credit. No loss has come to 
any one'in their operation in all the years since Raiffeisen started the plan in 1849. 

37031—14 2 



18 RURAL CREDITS. 

In 1884 the idea took fast hold in France and the agricultural syndicates were estab- 
lished and soon came to ho considered veritable public utilities. 

To-day there are 4,000 syndicates, having a million members, representing 5,000,000 
of the rural population of France. 

There are 1,1550 credit societies after the llail'l'eisen principle, having some 60,000 
members. There are 1,500 societies of agricultural credit under the law of 1894, 
which inaugurated a special type of bank composed of members of agricultural 
syndicates. 

These societies have resulted in doubling the produce of the land, enabled the 
farmers to meet the competition of other countries, attached the people to the soil, 
advanced the rural populal ion in prosperity and in economic, moral, and social improv- 
rnent. An illustration of the way cooperation works is this statement: The syndicate 
chartered steamers to carry strawberries to London, and growers doubled their profits 
over what they were when they consigned to Paris and left Paris to sell to London. 
Foreign trade was established in the same way in fruits and early vegetables, to the 
immense advantage of the growers. 

In Germany there are 17,000 credit societies, with 1,500,000 members. These and 
the Landschaften and other institutions providing for amortization and low rates of 
interest on long-time loans have redeemed agriculture in Germany. The German 
farmer and the French obtain all the money they need under the cooperative credit 
system at 3 to 4 per cent. 

The farmer must have capital. He must provide for annually recurring require- 
ments. He must have the means of using his asset (land) to get money as capital. 
Relief can not come through a system of commercial hanking. There is need for a 
special kind of bank, authorized to use its credit to guarantee long-term loans, so as 
to meet the farmers' capital requirements. 

These can not be met by direct loans from any bank. The railroads are financed 
by the sale of long-term bonds, based on capitalized prospects, rights, and property. 
The farmer needs an institution to guarantee his bonds and make them salable; one 
that would furnish not only the capital requirements of the farmer, but his annually 
recurring needs, naturally bringing about business methods, necessitating organiza- 
tion and cooperation, thus covering the en the field of agricultural reconstruction 
and making conditions for ideal rural life. 

I can not too strongly urge that a special kind of bank, a system separate and dis- 
tinct from commercial banking, must be established in order to supply the needs of 
agriculture and rural life. 

The deposit of postal savings funds and perhaps the governmental funds with the 
rural banks thus established would be wise and helpful, enabling the banks controlled 
by individual farmers, familiar with the needs of their communities, to make the 
loans as needed. 

The objection that such facilities would encourage debt and extravagance is 
unsound. On the contrary, the effect would be to lend hope to the farmer, brighten 
the lives of the country men, instill habits of thrift and economy, give open accounts 
and savings accounts, and promote business methods so much desired, and strengthen 
the independence and self-reliance of the rural population. 

The experience of older countries is contrary to the apprehension indicated. By 
the establishment of financial institutions primarily for the benefit of those engaged 
in agriculture and by methods of cooperation in various directions that industry has 
perhaps attained its highest development in Germany. With an area of 208,780 
square miles — not as large as Texas by an area greater than Alabama (53,618 square 
miles) — that Empire produces 95 per cent of the food required for its 67,000,000 people. 

The contention may be that an act creating a rural banking system would be class 
legislation. This is not well founded. Agriculture, commerce, and industries are 
the three great pillars of support and strength. The banking system heretofore in 
force contemplated meeting the requirements chiefly of the last two — commerce and 
industries. Agriculture has been left out of the reckoning. No commercial banking 
provisions can supply the needs of the farmer and must largely be confined to com- 
merce and industries. The man engaged in trade and the manufacturer must have 
facilities winch are entirely different from those needed for the farmer. The time 
has come when the chief stone of the temple must be considered. We can no longer 
neglect suitable financial provision for the farmer. Statistics furnish argument 
enough wdien they show the population of the United States increased from 1900 to 
1910, 21 per cent, while the number of workers increased on the farm during that 
period only 10.9 per cent and the workers in the factories increased ' 1900-1909) 40.3 
per cent and in the mines | L902-1909) S3.1 per cent. 

The criticism may be made that the proposed legislation smacks of paternalism. 
Not at all. The Government is asked for no subsidy. The postal savings must be 



BURAL CREDITS. 



19 



deposited somewhere; why not in the rural banks? It simply means providing 
by law a means of self-help. Individual initiative by the farmers must be exercised 
in order to make the system a success. The Government does no more in this matter 
than it does in respect to commercial banks. It gives opportunity, furnishes the 
machinery, supplies the working tools or a chance to get and use them. Laws appli- 
cable to the sea are peculiar and different from the laws in force on land, because 
the conditions are different. 

The conditions of rural life are not at all the same as conditions of life in the cities. 
Laws governing commerce are not the same as those with respect to mining. The 
proposition simply is to establish a system of agricultural finance suitable to the 
needs of those priests of nature who live nearest the fountain of life in the divine 
economy and on whose prosperity the welfare of all depends. 

It would mean that agriculture is not to be longer subordinated to commerce and 
industry. 

The Government should play no favorites. The moral and material upkeep of 
the rural population is quite as important as the development of urban industries or 
commercial expansion. The strength and health of society depend on the intelligent 
labors and well-being of the countrymen. 

We must look after something more than merely giving instruction how to culti- 
vate, produce, and market. We must do those things which will create a social order 
and adjust it to human needs. 

We can provide the machinery whereby the farmer can protect himself, and by its 
intelligent use reconstruct his great industry and redeem. rural life from stagnation 
and decay. 

That the time has come for the taking of steps of this kind is clearly indicated, I 
think, by what has been already said, to which I might add references to a few more 
statistics. 

Mr. President, I offer certain tables, which I ask to have printed as a part of my 
remarks. 

The Vice President. Without objection, leave will be granted. 

The tables referred to are as follows: 

Table 1. — -Number and percentage of farms of specified tenure in the United States, 1880 

to 1910. 

[From decennial census of agriculture.] 



Year. 


Number of farms 
operated by- 


Percentage of farms 
operated by- 




Owners. 1 


Tenants. 


Owners. 1 


Tenants. 


1880 s 


2,984,306 1,024,601 
3,269,728 ! 1,294,913 
3,712,408 2,024,964 
4,006,826 2.354.6: 


74.5 
71.6 
64.7 
63.0 


25.5 


1890 2 . . . 


28.4 


1900 


35.3 


1910... 


37.0 











1 Includes farms operated by owners, part owners, owners and tenants, and managers. 
1 Not including farms with an area of less than 3 acres which reported the sale of less than $5 worth of 
products in the census year. 
(This table can be expanded to a showing by geographic divisions and States.) 



Table 2. — Urban and rural population in the United States, 1880 to 1910. 
[Urban population resides in incorporated places of 2,500 inhabitants and over.] 



Year. 


Number. 


Percentage. 


Urban. 


Rural. 


Urban. 


P.ural. 


1880 

1890 

1900 

1910 


14,772,438 
22, 720, 223 
30,797,185 
42,623,383 


35,383,345 
40, 227, 491 
45,197,390 

49,39S.S83 


29.5 
36.1 
40.5 
46.3 


70.6 
63.9 
59.5 
53.7 



Note.— Quotation from abstract of the Thirteenth Census. 

(This table can be expanded to a showing by geographic divisions and States.) 



20 



RURAL CREDITS. 



Table 3. — Number and percentage of farms in the United States mortgaged and free from 

mortgage, 1890 to 1910. 

[From decennial census.) 



Year. 


Number. 


Percentage of owned 
farms. 


Mortgaged. 


Free from 
mortgage. 


Mortgaged. 


Free from 
mortgage. 


]R90 


886,957 
1,127,749 
1 , 327, 439 


2,255,789 
2,510,654 
2,621,283 


28.2 
31.1 
33.6 


71.8 


1900 


68.9 


1910 


66.4 







Note.— The figures are for farm families in 1S90 and for farms in 1900 and 1910. 
(This table can be expanded to a showing of geographic divisions and States.) 



Table 4.- 



1890. 
1910. 



-Percentage of farm-mortgage debt of the value of the mortgaged farms, 
and 1910. 



1890 



r rora decennial census.] 



Percentage. 
.... 35.5 
.... 27.3 



Mr. Fletcher. Table 1 has been prepared from tbe census reports as far back as 
1880, and tbe results of these censuses with regard to farm tenure show that the fraction 
of farms operated by tenants has steadily increased from 25.5 per cent in 1880 to 37 
per cent in 1910. 

It appears also from this table that the fraction of farms operated by owners decreased 
from 74.5 per cent in 1880 to 63 per cent in 1910. 

The actual and relative urban and rural populations from 1880 to 1910 are expressed 
in Table 2, and in this table it appears that the rural population has declined from 70.5 
per cent of the total population in 1880 to 53.7 per cent in 1910. Conversely the urban 
population has increased from 29.5 per cent in 1880 to 46.3 per cent of the total popula- 
tion in 1910. These figures do not mean that the changes in the relative proportions 
of these two classes of population have been caused entirely by the movement from 
country to city. Immigrants have tended more and more to remain in the cities, 
especially in New England and in the Middle States. 

The censuses of 1890, 1900, and 1910 took account of the number of farms operated 
by owners that were mortgaged or were free from mortgage, and the results are expressed 
in Table 3. The fraction of farms operated bv owners that were mortgaged increased 
from 28.2 per cent in 1890 to 33.6 per cent in 1910. 

The bulk of the farm-mortgage debt is incurred to secure deferred payments and to 
make improvements. This was thoroughly investigated in the census of 1890. See 
Abstract of the Eleventh Census, pace 243. 

Farms were worth more per acre in 1910, including improvements, than they were 
worth in 1890, and because of the increase in the value of lands the ratio of farm- 
mortgage debt to the value of the mortgaged farms declined from 35.5 per cent in 1890 
to 27.3 per cent in 1910. (See Table 4.) 

The decline in exports in the case of wheat and most of the packing-house products 
has been marked. In the exports of cotton it is true there has been enormous increase. 

In connection with an examination of the trend of exports of farm products it may 
be borne in mind that the imports of agricultural products has been greatly increased. 

The fact that agricultural production is not keeping pace with consumption is full 
of meaning. This diminution of agricultural surplus may be partly due to the effect 
of unfavorable climatic influences upon production, but it is also due in part to the 
building up of cities by immigration and to the drift from agriculture to other occu- 
pations at a faster pace than formerly. The movement from country and farm to 
city and town exists and has existed in all parts of the United States, and it every- 
where exceeds the contrary movement, such as it is. 

Last year we produced on our farms and in our factories and mines products valued 
at $40,000,000,000, of which we consumed thirty-eight billion ana exported two 
billion, in round numbers. We imported and consumed commodities from other 
countries of the value of $1,800,000,000. The important part cotton plays in the 
balance I need only suggest. 



RURAL CREDITS. 21 

ILLUSTRATIONS — RURAL CREDITS. 

To be sure, there is no "royal road" to success in farming any more than there is to 
learning. 

Everything depends on the individual farmer — his industry, judgment, and capa- 
bilities. 

But, assuming he has the necessary sense, energy, and ambition, he could get 
much further ahead, accomplish much more, enjoy life to a fuller degree if he ifl 
enabled to make judicious financial arrangements on terms two or three times as 
advantageous to himself as he can now. 

Certainly it means much to the country if a plan can be devised and put into exe- 
cution whereby the worthy and industrious man may secure a farm which lack of cash 
or credit makes impossible to him now. It would count for the individual and the 
general good if a way could be found whereby the people may be attached to the soil 
in contentment, comfort, and prosperity, whereas now they seek the city for em- 
ployment yielding only a bare existence. 

It would help mightily in the well-being of society if a plan of organization or co- 
operation can be put into use whereby the tenant can acquire a home for himself and 
become the owner of the farm he cultivates. 

These ends can be attained by profiting by the experience of others whose necessi- 
ties compelled a solution of the problem years ago. 

For instance, take this illustration from a Danish mortgage-society law, mentioned 
by the commission on rural credits and betterment: Members of the company (farm- 
ers who have mortgaged their property) must pay a yearly amount of 4 per cent inter- 
est, three-fourths of 1 per cent amortization, and one-fourth of 1 per cent for expenses, 
making altogether 5 per cent per annum, with the result that in 47 years their debts, 
principal and interest, are paid in full. 

The American farmer mortgages his farm and pays from 7 to 10 per cent interest per 
annum. The average rate of interest paid by the American farmer to-day is 7.79 per 
cent per annum, while the German pays 3J to 4 per cent, notwithstanding interest 
rates are generally higher there than here. His mortgage runs for 3 to 10 years — no 
matter what time — at the end of which he must pay the entire principal. Suppose, 
with renewals, his mortgage runs 12 years. He would pay 90 to 95 per cent for the 
use of his money for that time. The Danish farmer would pay 135 per cent for his 
money for 47 years. The American farmer would pay 7.5 per cent a year for his 
money — the Dane would pay 2.9 per cent. 

The Dane's loan is an investment. He can afford to borrow money to improve his 
farm or purchase his farm at that rate. The American is in debt and mortgaging his 
home; the Dane is using his credit. Each year, while paying only 5 per cent on the 
money received, the Dane is getting out of debt. The American is paying 7 to 10 
per cent and not reducing his debt a penny. At the end of 47 years — -or less time if 
he chooses to pay more — the Dane is out of debt and his premises are free. At the 
end of any period — even 100 years — the American would owe the original principal, 
his premises would be encumbered by the mortgage, although he will have paid twice 
as much as the Dane. 

A special imperial act provides for cooperative societies in Germany. As we have 
seen, there are 17,000 cooperative agricultural banks in Germany, with a total mem- 
bership of over one and a half millions. The loans outstanding at the end of 1910 for 
fixed periods, together with overdrafts, amounted to £93,034,000, while the savings 
deposits totaled £92,429,000, and the deposits on current account amounted to 
£10,865,000. 

The late distinguished minister of finance in Prussia, Herr von Miguel, some 17 
years ago said in Parliament: 

"This must be our goal — to have a cooperative loan bank in practically every 
parish of the whole monarchy." 

The result is the transaction with the German farmer is as follows: On a loan made 
at 4 per cent is added three-fourths per cent for amortization, one-fourth per cent to 
cover operating expenses of the association, and by paying this amount, a total of 5 
per cent annually for between 40 and 50 years, the entire loan is paid off. The farm- 
ers of this country must be got out of the clutches of money lenders, such as demand 
unconscionable rates and terms, factors who charge outrageous interest on advances, 
merchants who sell him goods on time at double prices, middle men who take advan- 
tage of the situation to despoil him, transportation companies which take all his 
products will bring him and call for more. I do not say these practices are universal 
or that the farmer is commonly imposed upon; but the picture is quite too familiar 
and at present he is too often helpless. 



22 RURAL CREDITS. 

Mr. Owen. Mr. President, — - 

The Vice President. Does the Senator from Florida yield to the Senator from 
Oklahoma? 

Mr. Fletcher. I do. 

Mr. Owen. I understand that even at the other end of the earth, in New Zealand, 
they have a plan of lending money to farmers at 3 per cent on the principle of amor- 
tization, so that at the end of 30 years, on an extremely low rate of interest a farmer 
can acquire a home or borrow money on the home, improve it, make it more pro- 
ductive, and by the use of easy credit produce the values from the home easily to 
pay for its development. 

I do not know whether the investigators studied the New Zealand method or not, 
and I should be glad to have the report include the New Zealand method of farm 
land credits. 

Mr. Fletcher. Mr. President, the commission did not visit New Zealand, but I 
do not doubt that the Senator from Oklahoma is entirely correct in his statement of 
the practice there. I have, however, no information on that subject through the 
commission or from any investigation which I have made. I have not any question 
but that the Senator's statement is correct. The system there is similar to the system 
which has been in existence and in operation in Germany for a great many years. 

The farmer, to whom we must go for what we eat and wear, should and must be a 
free man, when he is fit an i does his part, and not the slave of grinding conditions. 
Some of these conditions can be remedied by legislation. We surely can find a plan 
adaptable to the circumstances here which will build up the economic as well as the 
social structure of rural life. 

******* 

Any financial system is insufficient, inadequate, and fails utterly in its application 
which denies to that great industry lying at the base of all wealth and which must 
prosper if there is to be prosperity, which must make progress, if there is to be any, 
and which must keep pace with the times and improve in method in order to supply 
the increasing demand of a growing population just and fair facilities equal to those 
furnished the other great industries. 

It is said the farmers' assets are not Liquid, therefore they can not be utilized, as, 
for instance, goods moving in trade. I do not dispute the claim. I simply say, then, 
the farmer must have a system or plan different from the commercial plan suitable to 
the proper demands of agriculture. There is a necessary relation between coopera- 
tion and organization among the farmers and a banking scheme which must be evolved 
in solving their financial problems. Credit is necessary to successful cooperation. 
Organization on a cooperative basis will make possible the establishment of a system 
of agricultural credits. The most eminent authority on German commercial and 
agricultural banking. Prof. Reisser, says, "Agriculture requires a credit system 
adapted to the special nature of its production." Let us have this great economic 
truth sink into our minds to stay. Let us not ignore or blot it from our memories. 
Fully cognizant of its meaning let us face the problem in the blazing light of that 
truth. 

By Bulletin No. 1, April, 1913, by John Lee Coulter, it appears that of the total 
loans made by national banks only 6 per cent are secured by real estate, including 
mortgage owned; that of the total loans made by mutual savings banks, 42.6 per cent 
are so secured; that of the total loans made by stock savings banks, 40.6 per cent are 
thus secured; that of the total loans made by loan and trust companies, 10 per cent 
are thus secured; that of the total loans made by private banks, 20.5 per cent are thus 
secured. 

As I understand, this includes all real estate, and I dare say a comparatively small 
portion of the real estate included is country property. 

necessity for a complete system of rural banking. 

I" Mr. President, in what I have said I have sought to present a kind of general survey 
of the economic situation as affecting agriculture as an industry, a business, and a 
life, for it means all of these. 

Particular reference has been had to pending and proposed legislation respecting 
what is designated "currency reform," as related to that situation. I have sought to 
concisely state some reasons why I regard it highly desirable, if not absolutely neces- 
sary, that legislation, such as the pending Federal reserve bill, should be enacted into 
law, and that speedily. 

I have endeavored to point out that our present system of national banks is a com- 
mercial system, incapable of meeting the needs of agriculture. 



RURAL CREDITS. 23 

I have contended that the Federal reserve bill likewise is necessarily limited to the 
demands of commerce and industries. I have attempted, though in "a cursory way, 
to point out the efforts made in other countries to save agriculture by cooperative 
organizations and the establishment of banking and credit systems and to suggest that 
we profit by the experience and example of older countries, compelled by necessity 
to devise and put in operation such systems that agriculture might prosper. 

I have sought to give a glance at the status of agriculture in this country, its impor- 
tance, its problems, and rural conditions to-day. 

I have particularly aimed to stress the disadvantages under which the farmer now 
labors by reason of the lack of proper financial facilities, and to point out the necessity 
of a separate, distinct banking law under which institutions will be organized which 
can be authorized and empowered to supply the peculiar needs of the farmer. 

I contend that adequate banking facilities are necessary to the successful conduct 
of any business; that for this large class of our citizenship, about one-third of our 
population, and for this great industry upon the prosperity of which the welfare of the 
Nation depends, there has been heretofore no sufficient provision for meeting their 
banking necessities. 

I contend further their financial requirements can not be sufficiently provided for 
except through a special system of rural banking. 

I would like now to be more specific, both as to the needs and the remedy. Before 
attempting to provide a remedy you will want to clearly understand the needs. 

The needs of the farmer, as I conceive them, can be stated, in a condensed way, 
under three general heads as follows: 

FIRST. THE NEED OF CAPITAL TO ACQUIRE, IMPROVE, AND EQUIP HIS FARM. 

The cost of improving and equipping his farm is as much a part of the capital re- 
quirements of the farmer as the cost of the machinery in a cotton mill is a part of the 
capital cost of the mill. No class of men should be expected to work without tools 
or to make bricks without straw. A certain amount of money must be invested as 
capital in any business in order to equip that business and enable it to earn proper 
returns. This capital must be permanently invested or else it must be loaned to th« 
business for a long period on such terms that the loan can be repaid in small annual 
installments out of a portion of the profits derived from the business. This is felt 
keenly, too, when one desires to purchase land and acquire a home in the country. 
A remedy means tenants will become owners. 

SECOND. BANKING FACILITIES. 

The farmer must have available institutions which can meet his temporary banking 
requirements. He must be able to borrow for a few months some of the money needed 
to till the soil and to harvest and market the crop. Like the merchant who seeks 
temporary accommodation to secure money with which to discount his bills and pays 
back this money out of the proceeds of sale of the goods purchased therewith, so the 
farmer must likewise be able to borrow temporarily to discount his bills for fertilizer, 
seed, etc., and for the purpose of carrying on his business during its nonproductive 
period. Such loans must run for a few months, must be repaid out of the proceeds of 
the crop, and should not properly be borrowed on a real estate mortgage on the farm 
any more than the manufacturer's temporary accommodations for discounting his 
bills should be borrowed on a mortgage on his plant. 

THIRD. BUSINESS METHODS IN THE CONDUCT OF HIS BUSINESS. 

I The farmer, like the merchant, will ultimately keep an accurate statement of the 
condition of his business, so that he can always ascertain whether he is operating at 
a profit or at a loss, and he will cease depending on the business man to conduct all 
business transactions for him. He will adopt business methods and put them in 
practice in his own affairs. 

HOW THESE NEEDS CAN BE SUPPLIED. 

If this analysis of the farmer's needs approaches accuracy, the important question 
then is, How can these needs be supplied? And it must be remembered that these 
needs have been stated in the order of their importance, and that, in order to meet 
the requirements of the situation, it is necessary to provide some machinery for sup- 
plying these needs in the order named. 



24 RURAL CREDITS. 

FIR8T. HIS CAPITAL NEEDS. 

How can the farmer secure capital for the improvement and equipment of his farm 
or for the purchase of a farm? 

The answer is obvious. The farmer has only one asset, viz, land, on the credit of 
which he can secure capital. lie must secure his capital by borrowing on his land. 
Remembering that this capital must be in substance a permanent investment, it is 
obvious that any loan on land, made for the purpose of supplying the capital require- 
ments of the farmer, should be a long-time loan, repayable in small annual install- 
ments set aside by the farmer for thai purpose out of the annual profits derived by 
reason of the purchase or the improvements and equipment made possible by the loan. 
A loan of one year or three years or five years will not furnish the farmer's capital 
requirements, because he obviously can not repay it from his profits in that tune. 
No other business could pay off its capital investment within such a period. 

It is plain, therefore, that the best if not the only method of furnishing the capital 
requirements of the farmer is the creation of a long-term first-mortgage bond, secured 
on his land, which bond shall contain an amortization or sinking-fund provision, so 
that a small amount will be set aside each year sufficient in the aggregate to pay off 
the bond when it matures. This is analogous to the German Landschaft plan. 

Moreover, the capital requirements of the farmer, like the capital requirements of 
the merchant, manufacturer, or the railroad, can not be met by direct loans from the 
banks. The farmer's loans, made to furnish his capital requirements, should run 
from 20 to 50 years. No bank can loan money for such a length of time. The money 
must be borrowed from the investing public. 

Consequently the problem is not only to create such a bond, but more than this, 
it is to create such a bond in such a way that it will be bought and traded in by the 
investing public on the best terms. 

In order to do this, the bond must not only be secured on the land but it must be 
guaranteed by some financial institution or institutions of sufficient standing to satisfy 
the investor that the bond is absolutely beyond question. Just here is where a special 
system of banks is needed, which will be authorized to use their credit in guaranteeing 
such bonds under restrictions which will reduce the risk of such guaranties to a mini- 
mum. Such banks must be limited in their operations, so that a guaranty of this 
kind will not, under any circumstances, endanger their solvency. 

SECOND, HIS TEMPORARY BANKING NEEDS. 

The temporary banking facilities needed by the farmer must be supplied by local 
institutions managed and controlled by his neighbors, who are familiar with his 
needs, and who will see that the money borrowed is applied to the purposes for which 
it was obtained. This means that the farmer should have available the services 
and resources of a local rural bank, owned and managed by local people, which will 
collect together the neighborhood funds and make them available for neighborhood 
purposes. In the system outlined in the bill which I have offered, these local rural 
banks serve this purpose, and are also permitted to use their credit to guarantee the 
long-term bonds of the farmer, and so aid in supplying his capital requirements, which 
are the first and greatest needs. This follows the idea of the Raiffeisen system, to 
which I have alluded. 

THIRD, HIS NEED OF BUSINESS METHODS. 

The observance of business methods by the farmer and the keeping of proper ac- 
counts can not and could not be enforced simply by legislation. Business methods 
will be observed only where business conditions require the observance. The 
observance of business principles by the farmer will be accomplished when the banks 
which lend him the money for his temporary requirements demand the observance 
of such practices and the keeping of proper accounts as a condition of such loans. 
The local rural bank provided for in the bill will induce the farmer to keep accurate 
accounts as a condition to his obtaining the desired credit to meet his annually recur- 
ring banking needs. 

HOW THE BDLL MEETS THESE REQUIREMENTS. 

The bill, through a system of rural banks, limited as to their operations and contain- 
ing the power to use their credit in guaranteeing long-term farm bonds, furnishes a 
means of meeting these three essentials of any banking system suggested for the rural 
population. The rural banking board is so constituted and given such powers of 
supervision and control as to safeguard all transactions and have the r system conform 
to correct principles. 



RUKAL CREDITS. 25 

COMMERCIAL BANKS ARE UNABLE TO MEET THE REQUIREMENTS OF THE FARMER. 

I feel quite convinced that we can not expect a system of commercial banking to 
meet the needs of the farmer. It is recognized all over the world that no commercial 
banks can with safety be allowed to execute a pure contract of guaranty. A commer- 
cial bank can not afford to guarantee the payment of long-term bonds. Its assets 
must be quickly convertible and must become due and payable within a short period. 
By consensus of opinion it is generally recognized that it is unwise for commercial 
banks to lend money for a longer period than four months. It must be in position to 
respond to any liability on demand. 

FIRST. CAPITAL. 

As the farmer's capital requirements must be met by long-term loans obtained from 
the investing public, as the guaranty of these long-term bonds by some financial 
institution is necessary to their sale, as a commercial bank can not safely execute a 
contract of guaranty, it is obvious that commercial banks can not meet the farmer's 
capital requirements. 

SECOND. TEMPORARY BANKING FACILITIES. 

As commercial banks can not safely grant temporary credit for longer than four 
months, and as the farmer's requirements are for temporary accommodations for a 
longer period (or until the crop comes in), it is equally obvious that commercial banks 
are not suited to supply the annually recurring banking needs of the farmers. 

THIRD. BUSINESS METHODS. 

Commercial banks, as a rule, are located in cities, towns, villages, or other centers. 
They are usually remote from the farmer. Being remote, they are unable to make 
small loans needed in the operation of his business because of the expense incident 
thereto and because they can not keep in close enough touch to ascertain if the money 
derived from these loans is used for the purposes for which it was granted. The local 
rural bank is accessible, convenient, and conducted at nominal expense. 



INADEQUATE. 

The relief afforded in the bill is, moreover, inadequate. The present mortgage 
loans on farms in the United States approximate $3,000,000,000. In explanation of 
section 27 of the bill, the chairman of the committee has said ; in effect, that if every 
bank in the system loaned every dollar that it could under this provision there would 
be available about $250,000,000, which is just about one-fourteenth, or 7 per cent, of 
the present requirements, and is obviously inadequate. 

SPECIAL BANKS NECESSARY. 

The conclusion is irresistible that rural banking should be provided for in a separate 
system from commercial banking; that rural banks should have a special power to 
use their credit in addition to their cash resources to meet the needs of the farmer, and 
especially in order to aid the farmer to obtain capital, and should, on the other 
hand, be limited and restricted as to their operations and activities, so that the use 
of their credit will not impair their solvency. 

Some critics have suggested that bankers and capitalists would like to facilitate 
the mortgaging of farms and issuing of bonds in the expectation that they might eventu- 
ally own the farms. Here, again, the experiences of other countries is helpful. In 
Saxony 85 per cent of the land-mortgage bonds are held by the people of that Province. 
The rural people themselves are the chief and, in most instances, almost the exclusive 
owners of the bonds. The terms are so favorable to the borrower as to interest, reduc- 
tions, and payments there can be no excuse whatever for losing his land. 

Mr. President, I frankly say that the bill I have introduced has its weaknesses. 
It is not claimed to be perfect. It is not the last thought or the final word on the 
subject by any means. It has the merit of proposing something definite, and my hope 
is it will provoke discussion and lead to action now. It seems to me greatly preferable 
to have it considered at this time rather than have it go over to next session. It 
ought to be taken up and, if possible, considered and acted upon along with the com- 
mercial-banking bill. 



26 RURAL CREDITS. 

Mr. President, there is no more imp irtanl subject before the people of this country 
to-day than the unsolved problems of rural life. 

h is gratifying to note that interest is being aroused on tlas subject and our people 
are stirring in an unprecedented fashion. The highest country ideals mean the 
highest civili/.ai ion. 

If we can Bel in mol ion agencies that will bring about the highest type of an advanced 
rural society, we will have done a most, useful public work. 

If we can start moving forces which will develop the best country life, we will 
have answere I the call for genuine service. 

We make a tre udous contribution in those directions when we reach out our 

hand to the tillers of the toil and say, "We will start with you on the land; we will 
be with you in the cultivation, go with you to the market, and open the way for you 
to finance your affairs." 

When ilia! is done, fair opportunity will widen the horizon and beautify the lives 
of those engaged in agriculture. It will open the way for the betterment of rural 
conditions, even as Daniel's window opened toward Jerusalem. 

******* 

[Extracts from address of lion. Duncan U. Fletcher to the house of governors at Colorado Springs, Colo., 

A.Ug. 26. 1913.] 

Work of the American Commission Respecting Agricultural Finance, Organi- 
zation, Cooperation, and the Betterment of Rural Conditions. 

Gentlemen of the House of Governors, responding to the kind invitation of Gov. 
O'Neal, as chairman of the committee of governors on rural credits, to submit to the 
house of governors at this meeting a preliminary report from the American commission 
respecting its investigations of that subject in Europe, I wish to express the acknowl- 
edgments of the American commission for this consideration and to direct your atten- 
tion to the fact that so short a time has elapsed since the return of the commission any 
report now must be of necessity incomplete and general in character. 

Permit me to call to your minds that last December, some nine months ago, I had 
had the honor, by invitation of President Taft, of addressing you at the White House, 
on which occasion I sought to point out the plan for assembling the American commis- 
sion, the purpose then in view, including to some extent tne scope of the inquiry we 
expected to make, and appealed to you for encouragement and support. I boldly 
expressed the confident hope and belief that the movement started by the Southern 
Commercial Congress in April, 1912, through the inspiration and advice of Mr. David 
Lubin, American delegate to the International Institute of Agriculture, later joined 
in by Ambassador Herrick and others, would be successfully carried out. President 
Taft and the State Department became impressed with the significance of the under- 
taking to American agriculture and gave it their full sympathy. It is highly gratify- 
ing to report to you that the stupendous task assigned to us was accomplished. Every 
step was a step forward, and every detail was carried out precisely as planned with 
preeminent success. I am grateful to you for the assistance you rendered. Some 
States whose legislature met after your Richmond and White House conferences 
passed special acts — I recall Ohio, California, Oregon, and Washington — providing 
for representation on the commission. The Congress of the United States passed a 
joint resolution accrediting the commission to the foreign Governments. The State 
Department communicated this fact to our diplomatic officials in the countries visited, 
and in consequence the highest official recognition was extended the commission 
throughout Europe. Congress also provided in tne agricultural bill for a Federal 
commission of seven to be appointed by the President "to cooperated with the Ameri- 
can commission" in the study in European countries of the subject of rural credits. 
That act was approved March 4, and the commission, on the recommendation of the 
Secretary of Agriculture, was appointed by President Wilson, and five of them accom- 
panied the American commission on its tour of investigation and engaged actively 
with them in the work. 

Without reciting further details by way of showing the widespread interest in the 
subject and the forces behind the cause, I am able to state that on the 26th of April, 
according to our previous calculations, there sailed on the steamship Saxonia for Italy 
two delegates from each of 29 States, named by their governors, and from each of four 
Canadian Provinces desiring to join us. Takmg more or less part in the work, some 
already in Europe and some coming later, were representatives from seven other 
States. As stated, in addition and energetically cooperating were the five members 
of the United States commission throughout the inquiry. These commissioners 
returned on the steamship Cedric, sailing from Queenstown, and arriving in New 
York July 26. 



RURAL CREDITS. 27 

Speaking now for the American commission, which is directly connected with the 
States, I would say the field covered during its investigation in Europe was very 
broad. The countries visited included Italy, Austria-Hungary, Russia, Egypt, Ger- 
many, Denmark, Switzerland, France, Spain, Belgium, Holland, England, and 
Ireland. 

This extensive area was covered by dividing the commission into subcommittees 
so that considerable time could be given to each country. It must be remembered 
that the commission entered upon its study with what prior knowledge of the subject 
could be gained from published works. Thus its task was to correct, confirm, and 
readjust its book-gained opinions and to visualize the subjects rather than to conduct 
an exhaustive investigation into an entirely new field. Every facility was given the 
commission by the European Governments, and we owe indebtedness for their cour- 
tesies and assistance, and likewise by the farmers' organizations. I desire to empha- 
size the sincere appreciation of the members of the commission for the services ren- 
dered it by the American diplomatic and consular offices, acting under instructions 
issued by the Secretary of State, Mr. Bryan. Likewise the American Institute of 
Agriculture, through Mr. David Lubin, American delegate, rendered assistance by 
arranging in advance the details of the inquiry, without which it would have been 
impossible to cover the field within the time allowed, if at all. The organizations 
visited generously cooperated by having printed in English programs and other data 
relating to the subjects to be studied by the commission. 

******* 

* * * It seems quite well established that economic evolution has made organi- 
zation a necessity to farmers. Cooperation is urged as a form of organization which 
would secure for them at once the highest business efficiency and the greatest social 
strength. 

Cooperative organizations should be formed with a view, first, to improving their 
credit facilities; secondly, to increasing their control over the marketing of crops and 
to strengthening their position as buyers and sellers; and, thirdly, to establishing a 
channel whereby educational propaganda and work for the improvement of country 
life conditions may be effectively brought to the individual and his cooperation and 
participation in that work secured. 



Credit is the keystone of the organization proposed. American farmers possess poten- 
tial credit of vast amount. The task is to discover a plan whereby that credit may be 
made cheaply and easily available. 

The credit requirements of farmers differ radically from those of merchants and 
manufacturers chiefly because returns from money invested in agricultural enter- 
prises are much slower, though more certain, than returns from other enterprises. For 
this reason in many European countries financial systems have been established de- 
voted exclusively to the interests of the farmers. 

In the United States the farmer is dependent upon a banking system operated pri- 
marily in the interests of merchants and manufacturers, which in their nature are 
dissimilar to agriculture. 

European credit systems seem to be of two kinds, those providing personal short- 
time credit for operating purposes, and those providing long-time mortgage credit for 
works of permanent development and purchase. 

PERSONAL CREDIT. 

The most highly developed systems of short-time agricultural credit institutions are 
found in Germany. They are in the form of a pyramid composed of local cooperative 
credit societies, central societies operating generally over a Province or administrative 
district and a main central society, as the apex, at Berlin. 

Every farmer joining a local society assumes liability for its debts. In other words, 
he signs over his credit to the society and with this collective liability or credit as 
security the society contracts loans and solicits saving deposits. There may also be 
a cash capital subscribed or a cash reserve built up to serve as security in addition to 
the collective liability, but it is the liability which forms the chief security. The 
funds thus secured are loaned by the society to its members. A rate of interest is 
charged members on such loans sufficiently above the rate paid by the society to 
creditors so that the margin will cover the expenses of the bank and leave enough over 
for reserves or other purposes. 

In their operation is it necessary to insure two things — first, that creditors shall be 

{)rotected in their loans, and, second, that members shall be protected against the 
osses to which their liability subjects them. 



28 RURAL CREDITS. 

The member? are protected by placing every possible safeguard about the loans to 
insure their repayment. This is done, first, by admitting to the society only persons 
of good standing. Then it is provided that loans shall be made only for productive 
purposes, the borrower being required to state for what purpose he desires a loan. 
Further, the territory of operations for cadi society is limited to an area wherein every 
member knows every other member and is in position to find out whether the borrower 
is living up to the promises he has made to the society. The liability assumed by 
members is depended upon to keep them watchful of the affairs of other borrowers, 
and in a rural community this check is extremely effective. Also, profits are either 
prohibited or so strictly limited that there is no incentive to speculation as a means 
to swell the income of a society. The officers of the society are so chosen that one set 
or board keeps check on the other. The liability of all officers insures their watch- 
fulness. The general management of the affairs of the society is left in the hands of 
the general assembly of all members. No matter what stock ownership a member 
may have, lie is entitled to only one vote. His stock ownership is generally limited 
to a small amount. In this way these societies are insured a conservative manage- 
ment and maintain a surveillance over all loans made to members far closer than that 
maintained by the average commercial bank. 

All such local societies within a certain territory are combined to form a central 
society. A central bank is established which has, first, a small cash capital sub- 
scribed by the local societies, and, secondly, the collective liability of its constituent 
banks as capital. These central banks receive as deposits the surplus funds of local 
societies and loan them in turn to other local societies. In other words, they equalize 
supply and demand between the local banks. They are hardly more than paper 
institutions. Their management is under the control of officers chosen by the local 
societies through a representative system. 

The main central bank acts as equalizer for the central banks above mentioned. 
The effect of this pyramiding of the societies is to concentrate all of the borrowing and 
investing for a system in one big institution. The deposits, of course, are taken in 
by the local societies, and as the societies develop these form the bulk of the sys- 
tem's resources. In Germany such deposits have at times formed over 90 per cent 
of all the funds required for loans by an entire system. 

MORTGAGE CREDIT. 

The worst feature of the farm mortgage in the United States is in its individual 
character. An investor buying a farm mortgage must determine the sufficiency of 
the security offered by the land upon which the mortgage is executed, must attend 
to collections of principal and interest, must see that the taxes are paid and that 
the property is not allowed to depreciate in value to a point where the security of the 
mortgage is jeopardized. Obviously these responsibilities placed upon the mort- 
gagee make it necessary that he shall be in a position to keep posted with regard to 
the land upon which he has loaned his money. So long as this is true the market 
commanded by a farm mortgage will be restricted. Life insurance companies con- 
trol practically the only source of money to which the farmer may turn in disposing 
of his mortgage besides the individual lender or his direct agent. The individual 
lender controls the market. Therefore American farmers to-day are paying one rate 
of interest in one State and another elsewhere. They do not secure the advantages 
which ability to compete in a wide market bring, and since their mortgages do not 
form a liquid investment they are required to pay a higher rate than other borrowers 
who do not offer, perhaps, as good security. 

The second, and perhaps the greatest, disadvantage is the limited time for which 
a farmer may borrow money on a mortgage and the fact that he is required to pay back 
in a lump sum the entire principal of the loan at the end of that short time or else con- 
tract a new mortgage — that is, secure a renewal. An individual lender can not be 
expected to place his money in a nonliquid investment for more than about five years. 
He may grant a renewal of the loan, but he must reserve the privilege of calling in the 
loan at the end of that time and may increase the interest. It will require the farmer 
who has invested the money secured from the mortgage in farm improvements far 
mora than those live years to realize the entire principal. 

These disadvantages will rest upon the farmer so long as he is obliged to sell his 
mortgage direct to the investor — in other words, so long as it is an individual transac- 
tion. In Europe a remedy for these disadvantages has been discovered which does 
not involve the Government, except in its proper role as a controlling influence, and 
which does not jeopardize the safety of banks of deposit. 

The effect of the European system is to break all connection between the mortgagor 
and the mortgagee. An institution is established which appraises the land of farmers 



RURAL CREDITS. 29 

desiring mortgage loans. The loans are granted by such institution, which retains the 
mortgage. Then mortgage bonds, secured by the mortgages, but as the direct obliga- 
tion of the institutions, are issued. No one bond is secured by one mortgage, but 
each bond is a lien against all of the mortgages. Thus the investor in place of buying 
paper secured by one farm and having to determine what sort of a farm that is, buys 
a bond secured first by a "pool" of mortgages, and secondly by an amortization fund 
created by small payments made as the interest is paid. 

They are issued payable to bearer, are generally listed on the exchange, and so form 
a liquid asset. With these features the bonds sell at far lower interest rates than 
individual mortgages. The farmers are charged a rate sufficiently above the rate 
paid on the bonds to clear a margin for the institution to pay expenses, build up 
reserves, or for other purposes as desired. But the expenses of operation of such 
companies are so small in comparison with the volume of business done that this margin 
of profit may be taken by the institution and still the money can be loaned to farmers 
much cheaper than they can secure it for themselves. This is the first advantage 
brought by such institutions — cheaper interest rates. 

These mortgage bonds run for an indefinite period. Each year the farmers are 
required to pay, besides the interest, a certain percentage toward reducing the prin- 
cipal of the loan. Thus if an institution issues $100,000 of bonds and loans that amount 
on mortgages, the mortgagors each year pay the institution $5,000 to reduce the prin- 
cipal of their loans. This money is used to buy up mortgage bonds from the market. 
In 20 years the entire issue of bonds would be bought up. It is in this way that all 
European mortgage loans are paid up. Sometimes mortgages run for 50 or 75 years. 
The bonds are retired by lot, the company generally reserving the privilege to buy 
them in at par or at a slight premium. Also the payments of the mortgagors are gen- 
erally the same each year, a larger portion of the sum going toward principal and a 
smaller toward interest as the principal is gradually reduced. For instance, it is 
figured that a farmer having a loan at 4.3 per cent and paying each year 6.56 per cent 
would wipe out his loan in 25 years. This practice, called amortization, is of the 
greatest value to farmers, for it makes their payments on principal consistent with 
their income from money expended on agricultural improvements. So long as the 
farmer meets these annual payments the mortgage will not be foreclosed; also the 
interest rate can never be raised during the life of the loan. 

Thus we see that such a system reduces interest rates, makes the demands upon the 
farmer consistent with his income, eliminates commissions, protects him from fore- 
closure and from an advance in interest rates. It changes a mortgage from a burden- 
some debt to an advantageous form of credit — an investment. 

This plan of mortgage credit means more money for machinery, more for purchas- 
ing new land and for developing poor land. It means fewer tenants and more owners. 
It means better rural-life conditions. Generally, it would be unprofitable to attempt 
to develop land on money borrowed under such disadvantageous terms as now pre- 
vail here. Not only are the rates higher — that is the smaller part of the problem, 
I believe — but the farmer is forced to pay back his loan before he can make his farm 
earn that amount. That is the really great burden upon the farmer. That is the 
reason, I believe, why nothing more is done toward placing under cultivation the 
abandoned farm lands of the East and toward opening up the lands of the West and 
bringing more lands into cultivation in the South. The example of Germany in this 
respect is most interesting to Americans. Our commission was told that Germany is 
supporting to-day 67,000,000 people, is producing 95 per cent of the food they con- 
sume, and has definite hopes of increasing that percentage. This is being done on 
land centuries old that obviously was never particularly fertile. They are doing 
this through three influences — credit, cheap labor, and scientific methods. Of 
course cheap labor, as it is known on the Continent, is not to be considered m this 
country during this generation. I believe that we have the machinery to spread 
scientific methods. What we need above all is the credit necessary to bring those 
methods to practical fruition upon the maximum number of acres. As compared to 
Germany's record, we find in the United States the number of tenants increasing, 
the farm-mortgage debt increasing, exports of foodstuffs diminishing, imports of such 
products increasing, the movement from the country to the cities and towns augment- 
ing, production of food supplies approaching steadily to the point where we will have 
none to export, and it will soon become a question of supplying the home demand. 

It is true there have been rises in land values and advances in the price of food- 
stuffs, due, at least to a large extent, to the disproportionate increase in population in 
comparison with the increase in agricultural productiveness. It does not represent 
sound agricultural progress. 



30 RUEAL CBEDITS. 

BUSINESS COOPERATION. 

Every farmer musl be a business man as well as a producer. Bis success depends 
almost as much upon his efficiency as a buyei and seller as upon his efficiency as a 
producer, h is in this capa< ify thai the farm'';- touches the highly organized com- 
mercial world, and i1 is in this contacl thai he has suffered most. Clinging to his 
individualism the farmer lias attempted to stand against the organized forces of com- 
merce. In the few instances in which fanners have organized, notably among the 
fruit growers of the Pacific coasl and the dairy farmers of the Northwest, they have 
demonstrated the increased strength attainable through cooperation. The beginning 
of organization along these lines has already been made in this country, and the 
task is simply to spread the doctrine broadcasl and to lend assistance in the prelim- 
inary wort of organization. The reason that farmers have not more generally organ- 
ized a lorn; these linos in the United States is that our farmers possess a more intractable 
individualism than do the farmers of European countries and lhat in many sections 
they lack the essential foundation for such organizations- credit. The advantage 
of a cooperative credil system would be twofold — first, it would prompt the farmers 
to cooperate, and. secondly, it would afford Ihern credit to make possible the organ- 
ization of cooperative buying and selling societies. I believe that when the farmers 
come to realize the sa< rifices they are making to cling to the hollow shell of an old- 
fachioned individualism, which has been cast aside long ago by the urban industrial 
classes, they will accepl this aew doctrine. The task now is to afford them a credit 
system or plan, and with that at their command the other forms of cooperation would 
follow from the sheer force of their economic advantage. 

Although the cooperative purchasing societies of many European rural societies are 
organized separately from the credit societies, the cooperation between the two is 
very close. In fact, the purchasing societies generally depend upon the credit socie- 
ties for their very existence. The principle of the cooperative purchasing societies 
is simply wholesale purchasing. Needs are estimated and contracts made for the 
wants of a community for a year or perhaps longer. Orders of individuals are then 
collected and forwarded through the societies to merchants or manufacturers. Some 
sorts of goods are bought outright and stored by the societies. The greatest benefit 
from such practice is only to be secured through the centralization of a system of 
cooperative societies, in which case the purchases are made upon a sufficiently large 
scale to materially affect prices. This centralization can be very easily effected 
through the central societies organized by the credit societies. 

I do not mean to be understood as advocating the organization of cooperative 
societies to take the place of our local merchants, who constitute a useful and neces- 
sary part of the commerce of this country. Cooperative societies would have a field 
of their own, separate and distinct from that now occupied by the stores and shops of 
our cities and towns. In the purchase of manures, fertilizers, and such supplies as 
enter into or increase the product of the farm the cooperative societies could render 
a great service to farmers by demanding that all goods purchased conform to standard 
specifications, and they could buy direct at wholesale prices certain supplies, thus 
giving the individual members the benefit of the reduced cost. 

The organization and operation of cooperative sales societies would depend upon 
the sort of produce to be sold. Types of cooperative dairies and cooperative fruit- 
selling societies already exist in this country. The formation of such societies is 
purely a question of securing the most efficient business management. 

However, it requires credit to finance such societies. Where farmers are buying in 
the spring on credit from merchants and are selling the minute their crop is harvested 
in order to realize cash, thev can not operate such societies without a species of organ- 
ization by which their collective credit can be utilized. This condition prevails 
quite generally in the South. In other sections the farmers have been able to finance 
such societies, but if their credit facilities were improved it is reasonable to suppose 
that the strength of such societies would be thereby increased. 

When thorough business cooperation is established in a farming community and the 
cooperative principle is accepted, it is almost certain that the farmers will fall into 
the habit of cooperating upon general, social, and civic lines. I believe chambers of 
agriculture organized in the country districts would be found of great value. 

All of this organization work in European countries has been carried on through 
voluntary associations. In some instances the Governments for their own ends have 
attempted to control the movement, but the results of such control have not generally 
been regarded as satisfactory. A close study of the subject will show that the entire 
plan is based upon the idea of self-help, ana public nursing is not calculated to give 
strength to such organizations. 



RURAL CREDITS. 31 

Organization along cooperative lines has been demonstrated to be of great value to 
the farmers in European countries, and well-directed work of that kind ought not to be 
delayed or meet with indifference in the United States. 

Permit me to say further, individually, that in my judgment our rural population 
needs a financial plan or system separate and distinct from a commercial banking 
system to meet their requirements. They should have facilities for short-time cash 
accommodations at reasonable rates which can be had by cooperative institutions, and 
they should have a plan or means for obtaining long-time loans at a low rate of interest 
with sinking-fund or amortization feature. 

The question of State legislation to effect the establishment, management, and con- 
trol of such organizations, societies, associations, or institutions will no doubt receive 
your earnest consideration. 

Agriculture can be relieved of enormous burdens. Serious difficulties can be over- 
come by proper procedure. Our farmers do not ask for special favors, but there are 
some problems which are yet unsolved and constitute obstacles in the way of their 
progress. A long step will' be taken when they are in position to finance their affairs 
and introduce better business methods in their operations. 

The solution of these problems will not only mean the redemption of agriculture, 
the reconstruction of rural life, but go far toward reducing the high cost of living and 
relieving other burdensome conditions. 

It will mean not only relief to the farmer, but the permanent enhancement of the 
general welfare. 

******* 

With such a system of rural banks the States Bhould encourage the formation, not 
of new personal credit banks, but of cooperative purchasing, selling, and distributing 
societies, which can get needed credit facilities from rural banks, and the States 
should urge farmers to aid in establishing the rural banks as a means of hereafter 
financing cooperative societies where formed. 

In my remarks on that bill, August 9, I endeavored to set forth the farmer's financial 
needs and the methods by which these may be supplied. I designated then "his 
temporary banking needs," those which correspond to what I have herein referred to 
as his "personal-credit" needs. That is, his everyday-life needs which the Germans 
have found can best be provided for under the Raiffeisen system. 

I called then his "capital needs" those which correspond to what I term herein 
his "mortgage-credit" needs; that is, to be provided for by long-term bonds bearing 
a low rate of interest with the amortization feature. The German experience is that 
a system like the landschaft is the best yet devised for this purpose. Whether these 
two requirements can be provided for in one measure and in one system is somewhat 
difficult to determine, but I believe the bill combines them in a workable and advan- 
tageous way. 

On the 13th the President gave a statement to the press of the country, in which 
he said: 

"Special machinery and a distinct system of banking must be provided for if rural 
credits are to be successfully and adequately supplied. * * * There is no subject 
more important to the welfare or the industrial development of the United States. 
* * * r p} iere nas been too little Federal legislation framed to serve the farmer 
directly and with a deliberate adjustment to his real needs. * * * This is our 
next great task. Not only is a Government commission about to report which is 
charged with apprising the Congress with the best methods yet employed in this 
matter, but the Department of Agriculture also has undertaken a serious and sys- 
tematic study of the whole problem of rural credits. The Congress and the Executive, 
working together, will certainly afford the needed machinery of relief and prosperity 
to the people of the countrysides, and that very soon." 

I have contended all along that our present banking and currency system is framed 
to serve commerce and the industries other than agriculture. For 50 years it has dis- 
criminated against agriculture. I am convinced this was not a deliberate blow at 
agriculture, but arose for the reason that no commercial banking system can be framed 
so as to adequately serve agriculture. We must have a distinct system to meet the 
requirements of the farmer. 

In the various States your guidance and aggressive efforts will count mightily. 

I would not presume to press on you specific action. You will permit me, however, 

to urge uniformity in any action you may take and a full consideration of fundamental 

principles as a preliminary to any decision. It would seem possible to simplify and 

make uniform the land registration laws and that certainly is greatly to be desired. 



32 RURAL CREDITS. 

Tin' same thing i.s true as to the laws, practice, and procedure with respect to fore- 
closure of the mortgage lien. While devising a system advantageous to the borrower, 
it must be borne in mind that the lender is to be protected fully. 

The investing public in this country and from other countries while willing to 
accept a low rate of interest will insist that the security shall be safe and readily 
realized upon in case of default, without delay or expense, and the procedure ought 
to be practically the same, no matter from what State the security comes. 

It required 40 years to thoroughly establish the Etaiffexsen system and demonstrate 
its wisdom, but the grave of that pioneer is a shrine and the monument over it is one 
of the most prized in all Germany. It will take time to establish a like beneficient 
system in the United States, and we can not begin too soon. 



[Extracts from speech of Hon. Duncan U. Fletcher, of Florida, of Jan. 29, 1914, to National League of 

Commission Merchants.] 

Land-Mortgage or Long-Term Credit. 

* * * * * * * 

What do we find upon the slightest investigation? I was perfectly astounded when 
I came to dig into the question. For 50 years we have been operating in this country 
under a banking and currency system which was purely and solely a commercial 
system, absolutely created and adapted and used for the business man and the mer- 
chant, the manufacturer, and other industries than agriculture. It is not that we are 
asking anything unusual or anything special for the farmer. I believe that gentleman 
is pretty well known as being opposed to special privileges, and he is not asking any 
favor in his own case, but he is asking for a square deal. He is asking to be put upon 
the same basis as those engaged in other great industries in the country — nothing more, 
nothing less. 

In that system, which we created and which the United States Government estab- 
lished and which it supervised and controlled, it was written in the body of the law 
that no loans could be made upon real estate. Real estate was prohibited as security 
for loans by every national bank established under our financial system. 

Now, what does that mean? It meant, of course, that real estate, being the farmer's 
chief asset, was absolutely condemned as security for loans in this country, and he was 
deprived of that asset as a basis for credit. 

Did you ever think about it? It seems preposterous, when you stop to consider it, 
that land, real estate, the very basis of all our wealth, was one thing that no bank 
could loan money on. That was the one most substantial and valuable asset that the 
farmer had, and we have gone on for 50 years discriminating against the farmer under 
the only system established in this country. 

What was the effect of that? Naturally, business men, financiers, would hesitate to 
loan upon real estate, because they said the United States Government will not permit 
its banks, which it supervises and controls and directs, to loan upon real estate, we 
better not touch it. Consequently that has been a handicap and a hardship imposed 
upon the agricultural interests of the country. 

The farmer has been, generally speaking, without adequate facilities for financing 
his operations, and when he had such means he could make them available only on 
such terms and at such rates as to be the most burdensome imposed upon any people 
engaged in any industry. And for 50 years, I say, that has continued. 

Not until the recent act of Congress, establishing the Federal reserve system, was it 
permissible for national banks to loan upon real estate. Not until the recent Federal 
reserve act could his promissory note running over 90 days be classed as commercial 
paper available for discount; because he had no goods moving in trade or that he could 
handle and turn over daily he had to wait on the seasons. He had his cash coming 
when the crops matured, and he could not pay anything until then, whereas the mer- 
chant is able to carry on his business depositing and discounting from day to day. 

Now, I am not blaming the banks in that connection, because the system was such, 
that the banks had to be ready to meet the demands of their depositors on the instant, 
consequently they could not have their money tied up in long-time notes or loans. 
This is true under any commercial banking system standing alone. 

That was the reason, a very good reason, and it means that system needs to be sup- 
plemented by another system under which the farmer can get accommodations to meet 
his needs, and that problem has been worked out in Germany. It is not a mere 
theory, it is a practical demonstration. For 30 years they worked on it over there, 
and for over 50 years it has been established and in successful operation, and we may 



RURAL CREDITS. 33 

learn something; from the experience of other countries. They had to do something in 
order to feed their people; they had to revive agriculture; they had to take care of 
the farmer because they had to supply the food, and Germany, not as big as the State 
of Texas by an area as great as Alabama, is supplying 95 per cent of the food to feed 
68,000,000 people. 

Here in the United States, this great country of ours, the best country on the face 
of the earth, we are actually importing beef from Argentina and corn from Buenos 
Aires. For shame. 

What do we find? The tendency is from the country to the cities and towns. We 
find the tenants increasing and the occupying owners decreasing in the country. We 
find exports of foodstuffs decreasing and imports increasing. Is that a safe and sound 
condition for a country to face? Do we not know perfectly well that if the farms of this 
country were idle for one year that the grass and weeds would grow in these streets, 
and bats and owls would inhabit these buildings? You have got to come back to that, 
you have got to look after the man out yonder in the woods. We are all dependent 
upon him. 

We should begin, then, at the very basis of his operations because he needs capital, 
just like every other business man needs capital. Farming is something more than the 
mere growing of stuff. It is a business, it is an industry; and proper scientific farming 
to-day requires just as much business capacity, just as much judgment, as any other 
business to be successfully conducted. It is a business as well as an occupation, as 
well as an industry. 

We heretofore regarded the farmer as not needing to know about business methods 
and practices, because his business was expected to be attended to by his factor or 
banker, while he did the plowing and hceing and hard work in the fields. 

It is claimed that it has got so in some parts of the country that as the farmer rears 
his family — -one is a bright boy, and he says of him: "John here is a pretty bright 
boy; he has a bright mind. I am going to send him off to school and will make a 
lawyer of him or a doctor. Here is one who has a particular genius for mechanics. 
I will send him off to school. I will make an engineer of him. Here is Jim, he was 
always lazy, indolent, and thick-headed and never would learn anything. I will 
keep him on the farm and make a farmer of him. " 

Now, that has got to stop. We are going to prosper in this country. We have got 
to make it worth while to be a farmer. There must be fair remuneration for the toil 
and the chances. Farming must be placed on a business as well as scientific footing. 
Country life must be made attractive socially and industrially. 

We are not producing the amount of foodstuffs we could produce; we are not taking 
care of our farms; we are letting them grow up in weeds or waste away; we are not 
adding to the attractiveness and the beauty and the proper social conditions in the 
country as we should. If we are to prosper, we are not to neglect these things. 

And why should we? There are 12,000,000 engaged in agricultural pursuits. There 
are 30,000,000 people directly dependent upon the farms for a living, and we are all 
indirectly dependent upon them. The estimated value of the farm property of this 
country amounts to $40,000,000,000. 

Some people say, "Look here, you do not need to make it easy for the farmer to go 
into debt. You do not want to assist him in incurring any obligations, for he is too 
much prone to do that now. We are opposed to that. We do not want any plan 
whereby mortgages will be put on the farm and sent up to Wall Street. " It was 
charged recently that this scheme was a Wall Street proposition. Of course, the com- 
plete answer to that is the stand of the President of the United States, when he indorses 
the very idea we have been contending for. The plan proposed does not encourage 
but prevents getting in debt. 

But our good friends who are so solicitous about the farmer not getting in debt fail 
to realize that the farmer is already in debt. The farmers of this country owe $6,000,- 
000,000, according to Government statistics, $3,000,000,000 of it secured by mortgages 
on their farms; and I have on my desk in Washington stacks and stacks of letters 
from people in every State in the Union, and especially from the Northwest, and in 
many instances they tell me that the farms are mortgaged up to the assessed valuation 
of the property; and if it had not been for the natural and actual increase in the value 
of lands in this country many of our farmers would have been bankrupt years ago. 
It has been simply the natural rise in the value of lands that has saved them. 

Now, that is the condition. There is no use to try to get away from that. On that 
$3,000,000,000 they are paying an average of 10 per cent, including commissions and 
expenses — $300,000,000 a year in interest, nothing going to liquidate the principal at 
all. If we can do nothing more than save the farmers of this country $150,000,000 
annually we will have done something worth while. 

37031—14 3 



34 RURAL CREDITS. 

But they are paying that 10 per cent on $(3,000,000,000, which means $600,000,000 
of interest, while here is a possibility of saving $300,000,000 for the farmers of this 
country every year. Not only that, but it means giving them financial facilities so 
they can go on with their plans and develop their properties and beautify their homes 
and improve and make desirable country life. We can do this. It is being done in 
other countries; for instance, the interest paid in Germany is 3^ to 4$ per cent by 
farmers. The bonds based upon farm mortgages are sold in the market at just as high 
rate as the Government bonds themselves. Tliree and one-half to 4£ per cent is the 
interest at which those people get their money, and the ordinary commercial rate, 
I am told, is as high there as here. 

The farmer finds this condition— and here is where your work comes in, it seems to 
me — the estimate is that the value of the farm products annually on the farm amount 
to $9,500,000,000. Assuming that the farmers use one-third of that, we have $6,000,- 
000,000 as the value of the annual product of our farms, on the farms, going to market. 
It is estimated further that the consumers of this country pay $13,000,000,000 for 
those products, so that we have $7,000,000,000 disappearing annually between the 
farm and the breakfast table. Part of it is taken up in transportation; part of it is 
taken up in distribution; and there, I say, it seems to me, is the problem to which 
this league could well address its splendid minds — the solving of tnis as yet unsolved 
problem of distribution in this country. 

What is the best way? The farmer, of course, can not take his product to the con- 
sumer. He can not do that to any considerable extent, at least; he can not get in 
touch with the market places, but he can get in touch with honorable men like your- 
selves, who can help save him money on his transportation; who can get the best prices 
for his products; and who can, with him, and with the means you can command, 
enable some of that $7,000,000,000 a year to go to benefit the consumers of the coun- 
try, and some to benefit the producers of the country at the same time. 

A tremendous amount of money for the farmers, owing $6,000,000,000. We can 
not comprehend what it is. You may get an idea of it by this illustration: There 
have been just about 1,000,000,000 minutes since the birth of Christ, so that the 
farmers of this country now owe $6 for every minute of the Christian era. You must 
relieve that situation. 

And here is what the President says, in his powerful address delivered on the 2d of 
December to both Houses of Congress: 

"I present to you, in addition, the urgent necessity that special provision be made 
also for facilitating the credits needed by the farmers of the country. The pending 
currency bill does the farmers a great service. It puts them upon an equal footing 
with other business men and masters of enterprise, as it should; and upon its passage 
they will find themselves quit of many of the difficulties which now hamper them in 
in the field of credit. The farmers, of course, ask and should be given no special 
privilege, such as extending to them the crdit of the Government itself. What they 
need and should obtain is legislation which will make their own abundant and sub- 
stantial credit resources available as a foundation for joint, concerted local action in 
their own behalf in getting the capital they must use. It is to this we should now 
address ourselves. 

"It has, singularly enough, come to pass that we have allowed the industry of our 
farms to lag behind the other activities of the country in its development. I need not 
stop to tell you how fundamental to the life of the Nation is the production of its food. 
Our thoughts may ordinarily be concentrated upon the cities and the hives of industry, 
upon the cries of the crowded market place and the clangor of the factory, but it is 
from the quiet interspaces of the open valleys and the free hillsides that we draw the 
sources of life and of prosperity — from the farm and the ranch, from the forest and the 
mine. Without these every street would be silent, every office deserted, every factory 
fallen into disrepair. And yet the farmer does not stand upon the same footing with 
the forester and the miner in the market of credit. He is the servant of the seasons. 
Nature determines how long he must wait for his crops and will not be hurried in her 
processes. He may give his note, but the season of its maturity depends upon the 
season when his crop matures — lies at the gates of the market where his products are 
Bold. And the security he gives is of a character not known in the broker's office or as 
familiarly as it might be on the counter of the banker. 

' ' The Agricultural Department of the Government is seeking to assist as never before 
to make farming an efficient business, of wide cooperative effort, in quick touch with 
the markets for foodstuffs. The farmers and the Government will henceforth work 
together as real partners in this field, where we now begin to see our way very clearly 
and where many intelligent plans are already being put into execution. The Treasury 
of the United States has, by a timely and well-considered distribution of its deposits, 
facilitated the moving of the crops in the present season and prevented the scarcity of 



RURAL CREDITS. 35 

available funds too often experienced at such times. But we must not allow ourselves 
to depend upon extraordinary expedients. We must add the means by which the 
farmer may make his credit constantly and easily available and command when he 
will the capital by which to support and expand his business. We lag behind many 
other great countries of the modern world in attempting to do this. Systems of rural 
credit have been studied and developed on the other side of the water while we left 
our farmers to shift for themselves in the ordinary money market. You have but to 
look about you in any rural district to see the result, the handicap and embarrassment 
which have been put upon those who produce our food. 

"Conscious of this backwardness and neglect on our part, the Congress recently 
authorized the creation of a special commission to study the various systems of rural 
credit which have been put into operation in Europe, and this commission is already- 
prepared to report. Its report ought to make it easier for us to determine what methods 
will be best suited to our own farmers. I hope and believe that the committees of the 
Senate and House will address themselves to this matter with the most fruitful results, 
and I believe that the studies and recently formed plans of the Department of Agri- 
culture may be made to serve them very greatly in their work of framing appropriate 
and adequate legislation. It would be indiscreet and presumptious in anyone to 
dogmatize upon so great and many-sided a question, but I feel confident that common 
counsel will produce the results we must all desire." 

That is the position of the President. Bills have been prepared. I submitted one 
last August, and that was referred to a committee; but I am not so wedded to it that I 
am not perfectly willing to take any other measure that will bring about this relief. 
The measure will provide for the establishment of a system of farm-land banks, whereby 
the farmer can get financial accommodation for productive purposes on long term, 
with a low rate of interest and with the privilege of reducing the principal by small 
payments as he pays his interest. For instance, if he gets a loan at 4f per cent and 
pays 6f per cent semiannually, he will pay off and discharge the entire debt hi 25 
years. 

Now, gentlemen, I want to appeal to you as intelligent business men, who want to 
see the country prosper and grow, as it should and as it will in spite of hampered con- 
ditions, do not you favor a proposition like that? If you do, do not you think it is 
worth while to indorse it by some resolution which would have its weight in Congress? 
I think it will help if you will favorably consider it. 

I have in as condensed way as possible endeavored to outline the origin of this 
movement and the extent and scope of it and to indicate how this great economic 
question of rural credits ought to be dealt with. The Federal reserve act does not and 
could not be made to meet the situation. No strictly commercial banking system can. 
A supplementary system is required. The Federal reserve act goes as far as safety 
would permit. But under the privilege to loan on farm lands not over $200,000,000 
would be available. This amount would be decidedly inadequate to serve the in- 
terests of agriculture. The rediscounting privilege is so restricted as to be of somewhat 
uncertain value and surely is insufficient. A wise system of agricultural credit will 
undoubtedly be a highly effective instrument of economic and social conservation. 

I am going to leave the subject with you with this further thought: 

England might take first place in the naval world, Germany might take first place in 
the military world, but the United States takes first place in the commercial world. 
And that is more important than the other two, for the simple reason that peace lasts 
longer than war. And that nation which is in that position, supreme in its commerce 
and its trade, is in position, without bullying, to dictate in peace or in war. Its 
weapon is trade, and it will not likely need any other. That nation which produces a 
surplus of the prime necessities of life, which other nations must come to it to get or 
go hungry and naked, is in position of supreme power — and that nation is the United 
States. So long as that condition continues her position is assured while civilization 
endures. 

Senator Fletcher. In that connection, Mr. Chairman, I would 
like to say that the minority views of certain members of the Ameri- 
can commission will be printed as a part of Senate Document 261, and 
may be found there. I find that I have not a corrected copy of the 
minority views available; and it will hardly be practicable to get it in 
time to have it inserted in this record. 

I have here a table, prepared by Dr. A. L. Butt, of Adairville, 
Ky., which may be of interest in this connection. It is called 
"Amortization table," which he says is the result of a study of years 



36 



RURAL CREDITS. 



on this subject; and it gives the idea pretty dearly what is meant 
1>; th" amortization feature in these mortgages according to his 
plan. 

Senator Hollis. Without objection, that will be incorporated in 
the record. 

(The paper referred to is as follows:) 

Amortization table for note or bond of $1,000. 
[Rate of interest, 4£ per cent; annual payment, $67,439; time, 25 ; 



War. 


Principal. 


Interest. 


Principal 

retired 
each year 
or period. 


Total 

amount re- 

tired up to 

end of each 

year or 

period. 


Unpaid 
principal 

at end oi' 
each year 
or period. 


1 


81,000.00 


$45.00 


S22. 44 


$22. 44 


$977. .V, 


2 


977.56 


43.99 


23.45 


45.89 


954.11 


3 


954. 11 


42.93 


24.50 


70. 39 


929.61 


4 


929.61 


41.83 


25.60 


95.99 


904.01 


5 


904.01 


40.68 


26.76 


122. 75 


877.25 


6 


877.25 


39.48 


27.96 


150. 71 


S49.29 


7 


849.29 


38.22 


29.22 


179.93 


S20.07 


8 


S20. 07 


36.90 


30.54 


210. 47 


789. 53 


9 


789. 53 


35.53 


31.91 


242. 38 


757. 62 


10 


757. 62 


34.09 


33.35 


275. 73 


724. 27 


11 


724. 27 


32.59 


34.85 


310. 5S 


689. 42 


12 


689. 42 


31.02 


36.41 


346.99 


»;53. 01 


13 


653. 01 


29.39 


38.05 


385.04 


614.96 


14 


614. 96 


27.67 


39.77 


424. 81 


575. 19 


15 


575. 19 


25.88 


41.56 


466. 37 


533. 63 


16 


533. 63 


24.01 


43. 43 


509. 80 


490. 20 


17 


490.20 


22.06 


45.38 


555. 18 


444.82 


18 


444.82 


20.02 


47.42 


602.60 


397.40 


19 


397.40 


17.88 


49.56 


652. 16 


347.84 


20 


347. 84 


15.65 


51.79 


703. 95 


296.05 


21 


296.05 


13.32 


54. 12 


758.07 


241.93 


22 


241.93 


10.89 


56.55 


814. 62 


185.38 


23 


185. 38 


8.34 


59.10 


873. 72 


126. 28 


24 


126. 28 


5.68 


61.75 


935. 47 


64. 53 


25 


64.53 


2.90 


64.53 


1,000.00 


( l ) 


1,000.00 



1 Nothing. 

Senator Fletcher. Some of the results which may reasonably be 
expected to follow from the proposed legislation may be given as — 

(1) Supplying those engaged in agricultural pursuits with capital 
for the development and improvement of the industry. 

(2) Affording financial facilities for temporary needs to increase 
production and obtain supplies. 

(3) To make available the credit resources of farmers for produc- 
tive purposes, for acquiring homes, and for refunding existing in- 
debtedness, all at much more favorable rates of interest and on teims 
adapted to the nature of the industry. 

(4) To hold in the community the money made there, and afford 
depositories where savings can be kept and put in circulation. It is 
claimed, for instance, that 80 per cent of the farm-land bonds in 
Saxony are held by residents. 

(5) To bring outside capital to places where it is needed. Mr. 
Lubin states that the land-mortgage bonds in Germany are quoted 
as high and find as ready a market as the Government bonds. Per- 
haps this varies. In some localities they are not so high and are not 
in such good demand, but in some instances I think they are even 
higher. 



RURAL CREDITS. 37 

(6) Enable the farmer to use the credit which he should have, 
because of abundant resources, which, under present -conditions, he 
can often avail himself of, if at all, only at a ruinous cost. 

(7) Introduces at a vital point the tremendously valuable principle 
of cooperation into our rural life. 

(8) Induce organization among our farmers in their own interests 
and lead to self-help, independence, and self-reliance. 

(9) Tend toward solving the problem of economic distribution, and 
benefit both the producer and consumer. 

(10) If the French farmer can get the money he needs at 3^ per 
cent and the German farmer at 4 per cent, there is no good reason why 
our farmers should pay 8 to 24 per cent, and the principle funda- 
mental to all mortgage banks of Europe is the one proposed here, 
distinguishing farm-land banks from commercial banks — (1) the issue 
of bonds based on the collective value or security of many individual 
mortgages on real estate; and (2) compulsory amortization — all under 
Government supervision. 

(11) Tenants will become owners. 

(12) Agriculture will become more remunerative and rural life 
more attractive; good roads, telephones, rural free-delivery mail, 
social life, improved machinery when needed, broader markets, 
intensive cultivation when advisable, education, will all be advanced 
by the general increase of facilities and betterment of conditions. 

If you have further time, Mr. Chairman, perhaps it would be better 
to occiip}^ it by questions and answers. 

Senator Hollts. Senator Fletcher, I would like to ask you one or 
two questions and the others very likely do also. 

Do you think it is advisable at this session to attempt anything 
more along the lines you have indicated than the rural credits bill? 
That is, do you think we had better attempt any legislation looking 
to a cooperative credit system ? 

Senator Fletcher, Well, I will say frankly, Mr. Chairman, ray 
impression at first was, and that I attempted to do in Senate bill 
2909, to provide for both the long-term land-mortgage credit and 
the personal or short-term credit features in one bill. Our commis- 
sion thought it not wise to do that, and I finally became convinced 
that if both were attempted perhaps it was better to have them in 
separate measures, and the more I went into the subject and con- 
ferred with my associates, particularly the subcommittee, Congress- 
man Moss and Dr. Coulter, while we were engaged in preparing this 
report, Document 380, the more I became impressed with the notion 
that the present system, probably, and especially after the passage 
of the Federal reserve act, and our country banks as they are organ- 
ized now, had better be left to take care of that personel credit 
feature; and I felt that the country banks might oppose, in the first 
place, legislation along that line, and their opposition would count 
pretty heavily against us. And then I believe the country banks— 
and what I have said I did not mean at all to appear as criticizing 
the banks, any of them, either State or National, and what sugges- 
tions I have made in that direction as showing the system to be insuffi- 
cient to meet the needs of agriculture, is not a criticism at all, in 
fact, but it is a statement of fact regarding the system, and what 
must obtain under a commercial system. The banks have done the 
best they could, no doubt, and it may be that the local banks now, 



38 RURAL CREDITS. 

especially with this provision for rediscount under the Federal reserve 
act, will be able to take caro reasonably of that personal or short- 
credit feature that we will report on a little bit later. However, 
if wo can do it, I think it would be well to go on with both of these 
measures now, as long as we have got the subject up; and one some- 
what involves the other, and a study of one involves a study of the 
other, I think, to some extent, and one is supplemental of the other. 
I am inclined to think that if we can do so we ought to proceed with 
both of them. 

Senator Hollis. Do you not think that the long-term feature and 
the short-term feature ought to be incorporated in one bill, if we can, 
so as not to have them overlap ? 

Senator Fletcher. I say that was my first impression, but I have 
rather changed my view about that, and I am inclined to think that 
perhaps they ought to be separated. 

Senator Hollis. You would not have separate banks, would you? 

Senator Fletcher. Yes; separate banks and a separate system. 
Of course, the State banks that are now existing could perhaps reor- 
ganize or come in under that sort of a system, but the idea would 
be under that system personal or short-term credit banks would be 
organized in various communities, wherever the} 7 are needed, by 10 
or more farmers getting together. Perhaps the capital need not be 
over $2,000 or $3,000 to meet local needs. Then, after a certain 
number of these banks are organized, they should be tied up with 
some central bank — we call it "central," although that is not a very 
popular name; you might call it a "federated" bank — in the State 
where these banks are organized, and that bank would become a 
member bank of the Federal reserve system, and in that way the 
farmers' bank is tied up with the present Federal reserve system. 
Of course with a number of banks in the State, the federated bank, 
representing all these banks and created' by these local banks would 
have a capitalization of $25,000 or more, so that it would be entitled 
to become a member under the present act. 

Mr. Platt. Would you have to amend the Federal reserve act in 
order to allow that to be done? 

Senator Fletcher. Would we have to do that ? 

Mr. Platt. Does the Federal reserve act not provide that no 
member bank can give the privileges of this system to any non- 
member bank, at the present time? 

Senator Fletcher. Well, this central bank would be entitled to 
membership, entitled to become a member of that system. It does 
not need to make all of these local banks members at all, but the 
local banks will do business through that central bank. I hardly 
think it would be necessary to amend the Federal reserve act. 

Mr. Platt. I supposed the purpose of that provision in the Fed- 
eral reserve act was just exactly that, to prevent any member bank 
from allowing nonmember banks to do business with the Federal 
reserve system through any member bank. 

(■ Senator Hollis. They might make loans directly, while they would 
not be entitled to the discount. I think it could he worked out that 
way. 

Senator Fletcher. Yes. We have not fully agreed on the recom- 
mendations regarding personal credits yet. We have not finished 
our report, and there may be things that, of course, we will have to 



RURAL CREDITS. 39 

make harmonize with the present aet. I am not sure that we would 
have to amend it in any way. That is just what we had in mind in 
reference to these personal-credit banks, to have them organized by 
farmers, and then the banks themselves organize a main bank, a 
larger bank, with larger capital, in the same State, and that that bank 
might become a member of the Federal reserve system. 

Mr. Brown. Senator, would not the mortgages securing the long 
term loans be prejudicial and destroy the security of the borrower 
more than the short-term loan? That is, would it not affect his 
credit ? What security is offered in your bill for the short-term loans ? 

Senator EYetcher. We would not loan on real estate at all. 

Mr. Brown. I see. 

Senator Fletcher. It would be the indorsement on the paper by 
members. These banks would do business with the members of the 
bank entirely and would not loan on real estate. 

Mr. Brown. No, but the borrower, having put in his real estate to 
secure the long-term loan, as security to secure a long-term loan, 
would not that affect his credit in securing a short-term loan, because 
his property was already mortgaged ? 

Senator Fletcher. I do not think so. I think, on the other 
hand, if his long-term loan was rather in the nature of an investment, 
as we believe it would become, where the terms were such as he 
ought to have, he would be in better position to pay off his personal 
obligations than if he did not have the long-term loan. 

Senator Owen. He would have a productive property, hi your 
opinion, from which he could make the arrangements necessary to 
pay a short-term loan ? 

Senator Fletcher. Exactly. 

Mr. Hayes. Senator, I judge from your statement that you regard 
the long-term loan as vastly more important than the short term ? 

Senator Fletcher. I do. 

Mr. Hayes. Let me ask you another question: Do you think it 
would be an easy matter to induce cooperative banking, along the 
lines in operation in Europe, among the farmers of this country? 
Do you not think it is going to take a good deal of time and a lot of 
education ? 

Senator Fletcher. I think that is very largely true, Hr. Hayes. 
I think it is going to take time. It took nearly 40 years to establish 
the system in Europe, I believe. 

Mr. Hayes. Therefore it follows that your suggestion that the 
system should, if possible, be kept separate, and perhaps 

Senator Fletcher (interposing). Yes, and that is another point 
in favor of keeping them separate, I think. 

Mr. Hayes. Yes. 

Senator Fletcher. We provide in this bill we have introduced, 
you know, for a cooperative feature ? 

Mr. Hayes. Yes, I know. 

Mr. Woods. Senator, how about the expenses in running two 
systems compared to the overhead expenses in case that they were 
united; would it not be larger? 

Senator Fletcher. It seems to me so, and that was one reason I 
first thought that they ought to be contained in the same measure; 
but I am a little afraid that the expenses of supervision under the 



40 RURAL CREDITS. 

two separate systems will be greater than they would be under one 
system. 

Mr. Hayes. Would it be absolutely necessary that there should be 
two supervisions ? 

Senator Fletcher. We will have to provide for supervision, of 
course. 

Mr. Hayes. Yes, supervision; but the same officials, the same 
head, could supervise both systems. 

Senator Fletcher. Yes, that may be. But that was one thought 
that I had on the subject, that we were going to run into expenses 
by having two systems; but I do not know that that would neces- 
sarily follow. 

Mr. Hayes. I do not think it need to. 

Mr. Woods. Awhile ago I understood you to suggest that the plan 
proposed by the commission's report is the same, practically, as the 
plan now in force in foreign countries. 

Senator Fletcher. Well, no; I would not say that. It is really 
an American plan. It is different from any other. It is neither the 
Landschaften, nor is it the Schulze-Delitzsch. nor is it the Credit 
Foncier, but we have got some ideas from all of them. 

Mr. Woods. Do you propose any Government aid in any way ? 

Senator Fletcher. No; none at all. 

Mr. Woods. Is there any other Government that has established 
such a system that does not get Federal aid in some form or other ! 

Mr. Hayes. The Landschaften does not. 

Senator Fletcher. A great many of them do not have Govern- 
ment aid. 

Mr. Woods. Take the two classes of loans, in some form or other, 
do they not get Government aid ? 

Senator Fletcher. Under the French system there is Government 
aid, and in some States in Germany there is to some extent Govern- 
ment aid, but that does not obtain, as you suggest, Mr. Hayes, in the 
Landschaften system. 

Mr. Hayes. In the French system, Senator, the Government aid 
is not extensive. It only amounts to something like $2,000,000, 
except the deposits — the Government carries deposits. 

Senator Fletcher. Yes; about 82,000,000, I think. 

Mr. Hayes. That is all: nothing serious. 

Mr. Woods. The deposits are an aid, are they not ? 

Mr. Hayes. Sometimes. Sometimes they are not. They are not 
steady, of course. 

Senator Fletcher. Here we provide for exemption from taxation, 
double liability of stockholders, we provide for Government super- 
vision. Each one of these banks will have a fiduciary agent of the 
Government, having joint control of the mortgages that are the foun- 
dation of the bond, and in that way the Government supervises the 
operation of the system. 

Mr. Woods. Do you think that exemption from taxation is a 
proper plan ? 

Senator Fletcher. I do. I think that is very important. 

Senator Hollis. Senator Fletcher, do you think of anything fur- 
ther that you want to add before any general questioning? 

Senator Fletcher. No; I do not know of anything further. 



RURAL CREDITS. 41 

Senator Hollis. Mr. Bulkley, have you anything especially you 
Mould like to ask the Senator? . 

Mr. Bulkley. No; I do not care to question him now. 

Senator Hollis. Is there anyone else who wants to ask the Senator 
some questions ? 

Senator Fletcher. This subject is quite fully covered in this 
report, Senate Document 380. 

Mr. Weaver. I want to ask a few questions. 

Where is the money coming from to establish this system of banks ? 
I mean, suppose that it seems to be a good proposition for people to 
invest money in bank stock, there is no provision of any kind for 
Government aid. Now, the Federal reserve bank system does make 
a contingent provision for Government aid. For instance, it pro- 
vides that if this system of banks is not inviting enough for them to 
come into it, and a sufficient number do not come into it to establish 
the system, the Government itself shall buy the stock, shall take 
the stock, and individuals may subscribe to the stock. Is that 
not correct. Senator Owen, that individuals may subscribe to the 
stock if the different national banks can not or do not go into it on 
a scale large enough to establish it and then if the banks of the coun- 
try and individuals do not furnish enough money to buy the stock, 
that then the Government itself will buy the stock? What would be 
the objection of a system or proposition of contingent Government 
aid; that is, Government aid depending upon the fact that if it does 
not appear attractive enough for outside capital to invest in it and 
give it a start and make it a success, what is the objection to the 
Government helping establish a system of agricultural credit? 
While I do not believe in giving special favors to the farms or special 
benefits to any class, they certainly ought to be on the same basis of 
Government favoritism as commercial banks, it seems to me. 

Senator Hollis. If you will pardon me, Senator, I can clear up 
the Federal reserve act part of that. I was responsible for that 
myself, having the Government take stock in case the banks did not 
take it and the public did not take enough to make it workable. I 
did not do it wnith any idea that the Government would do it, but 
merely to show the banks that we meant business, and if they kept 
their talk about staying out we were going to put it through any- 
how. I do not think it is altogether defensible, but it seemed to be 
a good thing to do, a politic thing to do, perhaps, at that time, and 
I should be sorry to have that provision of the Federal reserve act 
made an argument for doing the same thing here, although I think 
likely it will turn out to be the best thing to do. But I want to say 
that I was responsible for it, and I did not do it with any idea that it 
would ever be availed of. I do not think it will be. 

Mr. Weaver. I think that is one of the most salutary provisions 
in the entire bill. 

Senator Hollis. I thought it was fair to Senator Fletcher to ex- 
plain that. I would be very glad to hear his views. 

Senator Fletcher. Of course, in answering the first part of the 
question, where the money is to come from to start these banks, 
they are all share banks. That is, they are not merely and purely 
cooperative institutions, you understand, but the stock is sold and 
the proceeds of the stock become the capital upon which they do- 
business, and that is where the money comes from. 



42 RURAL CREDITS. 

Senator Owen. The situation, I think, that Mi*. Weaver had in 
view, probably was that if the stock did not find a market, then 
what ? 

Senator Fletcher. Well, I see. Of course if they can not sell the 
stock they can not organize the bank. That is all there is to that. 

Senator IIollis. It is just like starting a cooperative creamery. 
Unless the public spirit is strong enough in the community, if the 
community docs not need it enough so that someone is willing to 
take the risk and furnish the money, they can not have it. Then, 
Mr. Weaver's idea is whether you think it would be advisable for the 
Government to do it. 

Senator Fletcher. I do not feel inclined to have the Govern- 
ment have any more to do with it than simply supervise it. 

Mr. Platt. If the Government should do that, they would fall in 
line. It would have a tendency to make the banks fall in line 
whether they want to or not. 

Senator Fletcher. Yes. I am rather opposed to Government 
aid. I do not think they ought to fall back on the Government at 
all. I am a great believer in the principle of self-help and self-reli- 
ance, and I believe the farmers can organize these banks where they 
need them, and they will do it because they have the resources to 
do it with. 

Mr. Hayes. I think they will too. 

Mr. Seldomridge. What is the smallest capital? 

Senator Fletcher. $10,000. 

Mr. Seldomridge. And with a capital stock of $10,000, what 
would be the loaning power '. 

Senator Fletcher. Fifteen times that. 

Mr. Seldomridge. Fifteen times ? 

Senator Fletcher. Fifteen times. 

Mr. Seldomridge. xVt $150,000? 

Senator Fletcher. They could issue bonds to that amount. 

Mr. Seldomridge. To the amount of $150,000? 

Senator Fletcher. Yes. 

Mr. Seldomridge. What interest would these bonds bear \ 

Senator Fletcher. Well, of course, that depends. The mort- 
gage shall not draw more than 1 per cent more than the bonds. That 
1 per cent is to be the maximum for administration purposes. 

Mr. Seldomridge. Do you think it would be possible to provide 
by legislation for an equalization of interest throughout the country, 
or do you look for it to be different ? 

Senator Fletcher. I look for a different interest charge. In this 
bill wc provide for the banks in each State, and the bank of one State 
is limited to that territory for its business; it can not do business in 
another State. That is because of the different State laws regarding 
registration, regarding titles, regarding foreclosure proceedings, re- 
garding exemptions, taxes, and all that sort of thing. We have to 
have, I think, the bank in one State confined to business in that State, 
and the bonds to be issued will be bonds from that State, you know. 
I should think perhaps that the interest rate will vary in different 
States. I do not think we can expect that the same interest will 
obtain all over the country. Eventually, however, let me say, I 
believe that this rate of interest will become largely equalized be- 
cause if, for instance, in your State you have to sell your bonds at 6 



RURAL CREDITS. 43 

per cent, and in another State, like Illinois, for instance, 4 per cent, 
naturally the Illinois bonds will not find the market that the 6 per 
cent bonds will, but eventually there is going to be a sort of equaliza- 
tion. 

Mr. Seldomridge. The point I have in mind is this, will the ten- 
dency be to raise the price of bonds in the States where the lower 
rates of interest prevail or will it be the tendency to bring down the 
prices of bonds in the States where the higher interest would prevail ? 
In other words, if the farm bonds in Colorado are selling at say 6 per 
cent, and Illinois bonds selling for 4 per cent, would there not be a 
tendency to raise the Illinois bonds, and would they not be obliged 
to increase the rate of interest in these States where the lower rates 
prevail in order to find a market for their bonds? 

Senator Fletcher. I do not think that. I think the tendency 
will be the other way, to lower the rates everywhere, because these 
bonds, according to the experience in European countries — and we 
have every reason to believe that will be the case here — will be 
found safe investments, absolutely, and the people will want them, 
and the local people are going to take them largely. 

Mr. Seldomridge. Of course a higher rate of interest will natur- 
ally prevail in all the States where there is less development of farm 
property and where the farms may not be quite so secure. 

Senator Fletcher. Where their crops are more or less uncertain, 
and where they have drouths, and all that sort of thing, it may be 
they will have a higher rate of interest to pay. 

Mr. Seldomridge. What will be the security back of these farm 
bonds ? What is the security provided for ? 

Senator Fletcher. Mortgages on lands, appraised by competent 
appraisers, and the loans not exceeding 50 per cent of the appraised 
value. Fifty per cent of the value of improved lands and 40 per cent 
of unimproved lands. 

Mr. Seldomridge. With that first mortgage they have, too, the 
indorsement of the bank issuing bonds ? 

Senator Fletcher. Exactly, with the capital and surplus of the 
bank back of it, and double liability of the stockholders and the 
mortgage. 

Mr. Seldomridge. Then you have also the liability of all the 
banks in that State — that is, other banks ? 

Senator Fletcher. No. 

Mr. Seldomridge. You do not provide for any system of coopera- 
tion of other banks: it is merely the local banks? 

Senator Fletcher. Exactly. 

Mr. Seldomridge. Do you think it would be wise to extend that 
liability beyond the individual bank and let it take in a group of 
banks ? 

Senator Fletcher. I did think so at first, and that is how I pro- 
vided in bill 2909, making all these banks guarantee these bonds, up 
to the central national bank, but I do not believe that is necessary 
now. 

Mr. Hayes. Would it not be a little hard to sell stock with that 
indefinite and large liability? 

Senator Fletcher. Yes. There might be objection on that 
ground. I do not think that would be best. The more I thought 
about it and considered it, the more I became convinced that those 



44 RURAL CREDITS. 

bonds ought to be good issued by the local bank, when the}' have 
back of them real estate worth twice as much as the face of the bond, 
and when they have the capital and surplus of the bank and double 
liability of stockholders, and when they have, in addition to that, 
tho amortization feature, whereby the borrower is annually or semi- 
annually reducing his principal all the while. 

Mr. Seldomredge. J)o those stockholders have to be residents in 
the district in which the bank is located? 

Senator Fletcher. No, sir. 

Mr. Seldomridge. You do not provide for the investment of funds 
from another State? 

Senator Hollis. Senator Fletcher, I imagine this Government help 
will turn out to be one of the lighting points of this measure, whatever 
it is. I would like to lay a little foundation for that at the start. 
Of course we realize that the Government authority is limited by the 
Constitution to fiscal agents, and that is all that that has been x- 
tended to, and I would like to have your view as to whether the 
Government can constitutionally loan money directly to applicants 
or invest money in the shares of rural-credit banks for the purpose of 
establishing them. Has your commission considered that? 

Senator Fletcher. We have not considered that particular point, 
as I recall. I do not think we had that up. But it is possible that 
there is no constitutional objection to it. The main objection would 
be, first, the objection that it is very largely paternalism and class 
legislation and 

Senator Hollis (interposing) . Subsidy ? 

Senator Fletcher. Yes. 

Mr. Weaver. That objection, Senator, would apply to a direct 
loan to the farmers. I do not see how a constitutional objection on 
account of class legislation could be presented as an objection to the 
Government establishing a system of land banks, or cooperative 
banks, agricultural credit banks, and putting Government money 
into them, to make them a success. It was pointed out that the 
first national bank, the Hamilton National Bank, was unconstitu- 
tional, and Chief Justice Marshall decided otherwise. 

Senator Hollis. I occupy a peculiar position on class legislation. 
I do not think there is any objection to class legislation, and I have so 
said, but constitutionally I have very grave doubts whether the 
Government could invest money in rural credit banks as a shareholder. 

Senator Fletcher. I have not gone into that question thoroughly, 
myself, as to the constitutionality. 

Mr. Weaver. 1 do not want to go on record as being in favor of 
class legislation, but if we are going to have any, I would rather give 
it to the farmers, than to any other class, as being the most worthy 
class. 

Senator Hollis. 1 am in favor of it at present, because I want to 
give it to that very sort of people. 

Senator Fletcher. I think it is very difficult to make class legis- 
lation out of legislation that is going to benefit the farmer and the 
agricultural interests of the country, because we are universally 
affected by what affects the agricultural interests of the country, 
and it seems to me it would be rather difficult to m.ike out a case of 
class legislation. Still, that objection could be urged as to that 



RURAL CREDITS. 45 

feature, and I do not think it is necessary to have Government aid, 
and 1 am rather opposed to it as a general proposition. 

Mr. Flatt. Senator Fletcher, in answer to a question of Mr, 
Seldomridge a few minutes ago you seemed to imply that it would be 
impossible for capital outside of a State to go into another State and 
help organize these banks. You did not mean to say that, did you? 
For instance, if I want to invest my money in a bank in Colorado 
there is nothing in this bill to prevent it? 

Senator Fletcher. Not as far as bonds are concerned. 

Mr. Platt. No; I mean in the bank itself, its stock. 

Senator Fletcher. My impression is that we confined the organi- 
zation shareholders to residents. 

Mr. Moss. No; it is just a limitation on the power of the bank to 
loan. 

Mr. Platt. There is nothing to prevent eastern capital from 
helping organize these banks in the West, is there? 

Mr. Moss. Oh, yes. 

Senator Fletcher. You are thinking of that in connection with 
the short term. 

Mr. Moss. I was discussing it in regard to the short term; but in 
land banks there is nothing in this bill to prohibit outside capital 
from being invested in the stock of the bank. 

Senator Fletcher. It was in reference to the short-term personal 
credit banks that we thought of confining the shareholders to the 
residents, but not as to these land-mortgage banks. In these share- 
holders may reside anywhere. 

Mr. Woods. What great inducement is there for people with a 
little money to take stock in these banks as proposed? 

Senator Fletcher. Well, of course the primary inducement is to 
provide for the needs of that immediate community. Do you mean 
for outside capital to come in and take stock? 

Mr. Woods. Yes. 

Senator Fletcher. Well, it is quite a safe institution. 

Mr. Platt. Dividends equal to the legal rate of interest in the 
neighborhood, and perhaps more. 

Senator Fletcher. Yes. The dividends may be very good, and 
probably would be; and then the bonds would be good investments. 

Mr. Platt. You think the dividends would be as high as the ordi- 
narv banks would? 

Senator Fletcher. I see no reason wiry they should not be. 

Mr. Weaver. That would be the same as all farm security. 

Senator Fletcher. It would depend very largely upon the amount 
of business they would do. 

Mr. Hayes. If they could get deposits, I see no reason why, with 
15 times the loaning value, they should not pay larger dividends 
than the commercial banks. 

Senator Fletcher. Yes. I have been told that commercial 
banks now opera ting on a margin of 0.35 of 1 per cent are earning 
20 and 30 per cent on their stock. Here we provide a margin of a 
maximum of 1 per cent. 

Mr. Bulkley. Where is that, Senator ? What banks are those ? 

Senator Fletcher. I have been told — perhaps I ought not to 
quote people personally about that — but in Vermont this particular 
institution I am talking about, I was told by the president of one of 



46 RURAL CREDITS. 

these institutions that they did a large business there, and what 
the hanks got out of it was 0.35 of 1 per cent, and they were able to 
pay 20 per cent dividends or something like that on their stock. It 
depends of course on the volume of business as to what the earnings 
would be. 

Mr. Platt. Do you think banks of this land could serve the farmers 
any better or make loans any cheaper than the savings loans insti- 
tutions can, building loan associations? 

Senator Fletcher. I think they can. 1 am inclined to think 
their operating expenses will be less, generally. 

Most people interested in them will be concerned very largely 
because of this cooperative feature, cooperative possibilities, and 
they will be keeping down the expenses of the institution, I think. 

Mr. Hayes. Senator, do you not think if we could organize a sys- 
tem of banks where the expenses would be down as low as the build- 
ing associations, which are usually under 1 per cent, that we shall 
have accomplished a great result for the agricultural interests of the 
country ? 

Senator Fletcher. Yes; I do. 

Mr. Hayes. I think so. 

Mr. Platt. You spoke of compulsory amortization. Of course 
amortization is what the farmers want, but could as low a rate of 
interest be given on a loan with the amortization feature in it as on 
perfectly secured loans without amortization ? Does not the bor- 
rower usually want a fixed term. Of course that does not affect the 
bond feature. 

Mr. Hayes. He would have a fixed term. 

Mr. Platt. He would have a fixed term of the bond. 

Mr. Hayes. The bank fixes that. 

Senator Fletcher. I think that is a very important feature. I 
think it is one of the most important features of this bill, that there 
should be compulsory amortization. 

Mr. Bulkley. Senator, on that point, a great many farm loans 
that now exist are constantly renewed, and as long as their security 
is kept good there does not seem to be any particular objection on 
the part of the lenders against renewing mortgages from time to 
time. If we had compulsory amortization that would upset all of 
that system. Do you think there is any reason why it should be 
upset ? 

Senator Fletcher. No; I would not want to upset it. I would 
want this system we are speaking of to be supplemental of what we 
have now. I would not want to interfere with what we have got. 

Mr. Bulkley. Do you think it is necessary that amortization 
should be compulsory, or shouldn't it be optional ? 

Senator Fletcher. 1 think it should be compulsory. I think that 
is the experience of all the countries where the system is in operation. 

Senator Owen. Senator, the defense of the national bank system 
against the charge of unconstitutionality was that those banks were 
an agency through which the United States might finance its bonds, 
and so forth. What is the defense of this system as against a like 
charge? You have doubtless worked that out, and I thought you 
might put it in compact form. 



RURAL CREDITS. 47 

Senator Fletcher. We made these bonds security for postal 
deposits, and, in a way, the banks may be fiscal agents of the Govern- 
ment. I think we come within that decision on that subject. 

Senator Hollis. You do provide in your bill, \ believe, that they 
may receive deposits of Government funds outside of postal funds? 

Senator Fletcher. Yes. 

Senator Owen. So that the postal funds might be deposited with 
these banks ? 

Senator Fletcher. Yes. 

Mr. Platt. It seems to me, Senator, that any possible scheme of 

Eayment on the installment plan can not work out as cheaply for the 
orrower as if he did not pay on the installment plan. It seems to 
be the same in buying money as in buying furniture or anything else 
that you can not buy on the installment plan without paying a little 
bit more. 

Mr. Hayes. Not unless there is some risk connected with it. In 
this connection I do not see your point. There is no more risk, and 
the risk is even less. 

Mr. Platt. If your security 7 is good, there is no more risk in not 
having the installment plan payments than there is in the other way. 

Mr. Hayes. The security is not, because it is personal security. 

Mr. Platt. We are talking about the long-term mortgages. 

Mr. Hayes. I do not think so. 

Senator Fletcher. I do not think that the objection would obtain. 

Senator Owen. Making these partial payments would be in the 
nature of an investment, leading the borrower out of the borrowing 
class and leaving him to escape from the borrower class. 

Senator Fletcher. This table I have just submitted here, for in- 
stance, gives a rate of interest of 4 h per cent, and this case, involving 
a bond of SI, 000 and paying 4§ per cent interest, the entire debt is 
liquidated in 25 years, which seems to be quite a favorable proposition 
for the farmer. 

We give illustrations in the report on that point. 

Mr. Platt. There are in existence at the present time two purely 
mutual institutions, one of them dealing in the amortization plan and 
the other in the mutual savings bank, institutions such as Senator 
Hollis has spoken of, the loan associations. I think it is the ex- 
perience of everybody who has tried to borrow, and I have tried it 
myself, that you can borrow cheaper from a savings bank than you 
can from a building loan association. The amortization feature is a 
great advantage to some people, but for people who do not need it 
it is a little bit cheaper to borrow money from a savings bank. 

Senator Hollis. The reason for that is this, that the building loan 
associations will loan out practically the entire value of the propertv; 
that is, they will advance the funds, and they will put it right in tne 
property, and therefore it is proper, because the risk is greater, that 
they should require a better rate of interest. 

Mr. Platt. They are purely cooperative, because the borrower is 
an association member. 

Senator Hollis. Not with our associations. The men who borrow 
from it pay a higher rate of interest. It is a mighty good investment 
for those who put money into it, but it is a very poor one tor the 



48 RURAL CREDITS. 

borrower, because they make the borrowers pay a higher rate of 
interest because of the greater risk. I think that is the theory of it. 

Mr. Hayes. The mutual savings bank requires such a big margin. 

Mr. Platt. 1 do not think in my State the margin is any different. 
The margin is just the same. 

Mr. Hayes. They make themselves absolutely safe. There is 
absolutely no risk at all with the savings bank, but with the building 
association they will take a man's case, as you might say, and finance 
him on a great deal smaller margin. 

Mr. Platt. But they have the amortization feature. The bor- 
rowers have to be members of the association, and they get a part of 
the profits back. 

Senator IIollis. There are a great many members who never 
become borrowers, and they need not become members in order to 
become borrowers. That is a feature we want to avoid. 

Senator Fletcher. A great many of these institutions have refer- 
ence more particularly to enabling a man to build a home, and they 
will generally loan him all that he needs to build the home; if he 
furnishes the land they will build the house. 

Mr. Hayes. That is the case generally. Of course, the proposition 
before the commission is along the same general lines. 

Mr. Moss. The amortization feature in here is really the savings 
feature we put in here; that is the real value of it. It is for the bene- 
fit of the borrower as much as the lender, with the idea that it might 
tend to encourage a person, under Government supervision, to go in 
debt for a long time without making provision for paying it; so it is 
really making the bank a savings bank. 

Mr. Platt. I do not believe it would work out any cheaper for the 
borrower than if he borrowed direct from the mutual savings bank. 

Mr. Hayes. It might work out to his advantage in the end, in 
that he would have his land left in the one case, and in the other the 
bank would have it, perhaps. 

Senator Hollis. I have an illustration. I am trustee of an estate, 
and there is a mortgage on it on which a farmer has been paying 6 
per cent interest since 1876, and he is now dying with cancer. If 
that had been on the amortization plan, even at 4^ per cent, accord- 
ing to this theory, he would have had his debt all paid up now. 
It is a good deal like the insurance policies that we have all taken 
out; they collect more from you than they really come to, but the 
endowment feature and the participating feature, and so on, compels 
a man to save something, if he once starts and keeps up his payments. 

Senator Fletcher. Then I think you get a better rate of interest 
and get a wider market for your bonds and a greater demand for 
them if the purchaser of the bonds knows that back of them is what 
would be, in the case of an industrial bond, a sinking fund that is 
going to take care of that obligation. 

Senator Owen. Increasing the value of the security? 

Senator Fletcher. Precisely. And instead of having a sinking 
fund that is kept separate and invested, that may be lost by the 
investment, we provide for this amortization feature, whereby the 
payment is noted on the mortgage. It has the features of a sinking 
fund and has the advantage of being a credit, when it is made, on 
the mortgage, rather than invested as a sinking fund might be 
invested. 



RURAL CREDITS. 49 

Mr. Platt. After all, the chief advantage of it is that it compels 
the borrower to pay back in small amounts, so that he is bound to 
save, and it is not in the low rate of interest. 

Mr. Hayes. But when you come to the practical operation of a 
scheme of that kind, it seems to me, Mr. Platt, that it would give 
additional confidence to the public in the bank and in the bond that 
it had issued. 

Mr. Platt. I think it would. 

Mr. Hayes. If there was compulsory amortization in the law. 

Mr. Platt. I think so. 

Mr. Hayes. Because they would not have any poor securities; it 
would make it impossible to have any poor securities. 

Mr. Brown. Would it not lessen the value of the bonds if at every 
interest payment there would be an amortization payment ? 

Mr. Hayes. Oh, no; not of the bond. 

Senator Fletcher. The bond is not issued against each mortgage; 
it is issued against all the mortgages. The provision is made that 
the amount of bonds outstanding shall not exceed the amount of 
mortgages that the bank holds. It may have 20 mortgages, you see, 
and the issue of bonds is against the whole 20 mortgages. If the 
individual mortgagor makes a payment on account of his principal, 
it is noted on the back of his mortgage as paid on that morgtage. 
But of course the bank has got to see that the bonds outstanding do 
not exceed the face of the mortgages which it holds. And then we 
have a provision in here for the bank to use its capital and surplus in 
buying in these bonds from time to time, so that will help to keep 
the market price of the bonds up, and will be an advantage. 

Mr. Hayes. Of course as the operation went on and these mort- 
gages were paid, these installments, that gives capital to make other 
loans and make other mortgages. 

Mr. Seldomridge. What is the lowest denomination of the bonds? 

Senator Fletcher. I do not think we provided for that. It is 
left for regulation by the banks, as I recall it. 

Mr. Seldomridge. Do you not think it advisable to issue these 
bonds in rather small amounts to be used for saving purposes by 
people of small means? 

Senator Fletcher. I think that is true. We have not fixed the 
denomination of the bonds. That will be left to the bank. One 
community might want one denomination and another community 
another. 

Mr. Seldomridge. You could fix a minimum and maximum be- 
tween which they might operate. 

Senator Fletcher. Yes, that could be done. 

Mr. Seldomridge. A minimum and maximum. 

Senator Fletcher. That could be done. The bank must see to it, 
and this Government agent, that the bonds are called in as the 
mortgages are paid off. That is another matter, Senator Owens, 
that ties this up, I think, to the powers of Congress. We provide 
that there shall be a fiduciary agent of the Government in every one 
of these banks, and it is his business to see to it that the mortgages 
shall be there to equal the bonds that are outstanding in these banks. 

Mr. Hayes. And that the payments are made? 

Senator Fletcher. And that the payments are made and entered 
properly and registered. 

37031—14 4 



50 RURAL CREDITS. 

Mr. Seldomridoe. Do you think, under that, scheme, that in the 
manner proposed there, there will be a positive inducement for cap- 
ital to go into what we might call the needy farm sections of this 
country that are now asking for this relief and establish these insti- 
tutions ? 

Senator Fletcher. I do. 

Mr. Seldomridge. And do you think there is sufficient attraction 
for capital to seek investment in that particular section ? 

Senator Fletcher. Yes, sir. 

Air. Seldomridge. What makes you think that? Is it anything in 
addition to what you have said here, or just providing means for 
investment which are not now open ? 

Senator Fletcher. I think it provides means for investment which 
are not now open, and then, in the next place, I think it will uncover 
and develop, perhaps, funds that are not in bank and not in circula- 
tion now in the various communities. It is an absolutely safe invest- 
ment for people who have money and who are afraid of banks. That 
will be one source. 

Mr. Seldomridge. In other words, it will be a vehicle for putting 
on the market the mortgage securities in a different way from what 
now obtains ? 

Senator Fletcher. Yes. 

Mr. Seldomridge. The people, instead of having to find an indi- 
vidual lender, or, on the other hand, an individual borrower, the two 
will be brought together through this channel ? 

Senator Fletcher. That is true. 

Mr. Hayes. The individual lender does not have to watch the indi- 
vidual borrower to see how he is getting along. The bank takes care 
of that. 

Senator Fletcher. The man who holds the bonds has no relation 
with the man who made the mortgage — not at all — and I think that 
will attract outside capital. 

Mr. Hayes. I think it will. 

Mr. Seldomridge. I think the proposition is a good one, if we can 
secure absolute fidelity and security in the management of the bank. 
If that can be done, I think there is no question in my mind about it. 

Senator Fletcher. Yes. 

Mr. Brown. On that point, even though the individual borrower 
may pay off at stated periods and get credits upon his individual 
mortgage, does not his property in fact stand for the security of all 
the bonds that are out, even though he may be entirely paid out — 
does hot his property still stand for the face of all the bonds that are 
out? 

Senator Fletcher. No, sir; the lien on his property is gradually 
diminished. 

Mr. Brown. Suppose, though, that the bonds are not paid. 

Mr. Hayes. That has nothing to do with the mortgage; it does 
not affect the mortgage at all. 

Mr. Moss. Under the terms of the bill, Mr. Brown, that could not 
happen. 

Mr. Brown. It could not happen if the bank was properly or- 
ganized and everything went along smoothly; but suppose the bank 
were to fail, or the bonds be stolen. 



BUBAL ^CREDITS. 51 

Mr. Hayes. Suppose it did fail, and the mortgage is paid off to 
$100; that is all ne is called upon to pay. 

Senator Fletcher. There can not be outstanding more bonds than 
there are secured by the mortgages. 

Mr. Weaver. It is just an asset of the bank, that is all, and if the 
bank fails of course the creditors of the bank participate in its assets 
and the mortgages outstanding are given to that bank, and have no 
connection with the bonds of the bank in any way. 

Mr. Brown. Suppose the bank should fail and they were not 
paid ? 

Mr. Hayes. The mortgagor would not have to respond except to 
the extent of his mortgage under the bill we have here. 

Mr. Seldomridge. Whenever any portion is paid on a mortgage, 
that portion is reinvested in some other bond, and the difference 
between the amount covered by the mortgage and the amount paid 
in would be found somewhere else — in some other investment of the 
bank's property. It would be in the capital somewhere. That 
would be the security that the bondholders would have, other than 
the security of the balance due on the mortgage. 

Mr. Hayes. The bondholder would have not only the total amount 
of mortgages held by the bank, but would also have tho capital and 
surplus of the bank, and the double liability of the stockholders. 

Senator Owen. If there was an individual loss under a system of 
that kind, which might occur in an individual instance, the mortgage 
would be covered by the earning capacity of the bank otherwise. 

Mr. Platt. It is not inconceivable, of course, that a big defalca- 
tion might ruin the bank. 

Senator Owen. That would ruin any bank. 

Mr. Seldomridge. Could we not put in this bill some sort of 
guaranty provision which would protect the bondholders against 
defalcations ? 

Senator Fletcher. We have got our provision here in the rep- 
resentative right in every bank. 

Mr. Hayes. If your Government representative is performing his 
duties property, there could not be any defalcation. 

Mr. Platt. The local stockholders and directors ought to have 
some responsibilities. 

Mr. Brown. Then, Senator, may I ask this question, which appears 
to me to be in point: Is not the bondholder in the end dependent 
entirely upon the integrity of the bank ? 

Mr. Hayes. And the fiduciary agent of the Government, too'? 

Senator Fletcher. Ultimately, that might possibly be. Of course, 
if the mortgages were stolen and taken away he would lose his security 
for the bond. 

Senator Owen. It would have to be a protracted series of de- 
falcations, which is impossible under Government supervision. 

Senator Fletcher. I do not see how it is possible to happen as we 
have this bill, because we have Government inspection, and we have 
a Government agent in every bank. 

Mr. Seldomridge. Do you make them depositories in any way? 

Senator Fletcher. Yes. 

Mr. Weaver. Is not the whole theory of our Government based 
upon the fact that we have got to rely upon some men being honest? 



52 RURAL CREDITS. 

Senator Owen. We all put our lives in the hands of the fellow who 
handles the throttle of the engine every time we ride on the trains. 

Mi-. Hayes. And even on the fellow that is fixing the track; we 
have got to depend on him. 

Mr. Bulkley. What is your view of the probable effect of this 
legislation on farm-land values? 

Senator Fletcher. It may be possible that it will increase farm- 
land values. The low rate of interest would have a tendency to do 
that. 

Mr. Hayes. Do you think that is desirable ? 

Senator Fletcher. I do not see any objection to that. The only 
reason, it seems to me, that it might be undesirable would be to 
encourage speculation in lands. 

Mr. Hayes. Is not this the principal objection to it, that it makes 
it harder for the individual to get a farm ? 

Senator Fletcher. That might possibly happen in some instances, 
but still if he is getting a more valuable farm he can afford to pay 
more for it. I do not think there will be very much danger of any 
material rise in farm-land values. 

Senator Owen. The remedy for your suggestion, Mr. Hayes, is 
single tax. [Laughter.] 

Mr. Hayes. What objection would you see to our undertaking to 
prevent that result by providing in tne law for what purposes the 
money can be used ? 

Senator Fletcher. We do that. 

Mr. Hayes. Would that not accomplish that result \ 

Senator Fletcher. I think so. I think that is a safeguard against 
that. We provide in the bill that it shall be used to complete the 
purchase of land, to supply money to complete the purchase of 
land, to improve and equip the farm, and to pay off existing liens. 
Those are tne three purposes named in the bill. 

Mr. Hayes. So that the man that had none ol these needs could 
not be a borrower under the law '. 

Senator Fletcher. He could not borrow, no. I do not think 
that it would be possible to borrow lor purposes ol speculation to 
any extent. As a matter of fact, I believe generally our lands 
are lower priced than the lands of any country where they do not 

{>roduce any more than our lands. I think our lands are generally 
ower in price, compared with the lands of other countries, so that 
we can stand some increase. 

Mr. Platt. Suppose I own a farm just as an investment and it is 
clear of mortgages, is there anything in this bill to prevent me from 
borrowing other funds, if I want to '. 

Senator Fletcher. I did not quite get that. 

Mr. Platt. Suppose I own a farm that is clear ol mortgages, just 
as an investment. 

Senator Fletcher. Yes. 

Mr. Platt. Is there anything in this bill that prohibits me from 
borrowing under this plan ( 

Mr. Brown. Yon would have to spend the money on the farm. 

Senator Fletcher. You would have to borrow for the purpose of 
improvement or equipment. 

Mr. Platt. Well. I could fix that easy. enough. I could use this 
money I got from this mortgage for improvement and take other 



RURAL CREDITS. 53 

money and buy railroad stock that I intended to use for improving 
the farm. It seems to me you can not get up a system that will 
absolutely insure that the money is not going to be spent except 
for certain purposes. If the man has good security and wants to 
borrow on it, I do not see how you can avoid lending him. 

Senator Fletcher. So far as I am concerned personally, I do not 
see that we ought to set ourselves up as guardians of the farmers. 

Mr. Platt. I think you are entirely right about that. 

Senator Fletcher. I think if the farmer gives good security that 
is all we need to bother about; what he does with the money is his 
business. 

Mr. Brown. Suppose he wants to buy an automobile? 

Senator Fletcher. Well, if he needs one he ought to buy one to 
take his children to school. 

Mr. Weaver. However, the purpose of this bill is the develop- 
ment of farms, and the giving to the farmers of facilities that they 
do not now have under the general commercial banking system and 
under the borrowing of money from individuals ? 

Senator Fletcher. Yes. 

Mr. Weaver. I say, is not the purpose of it to put the money 
from this system which the Government of the United States, through 
the Congress, is endeavoring to give to the people, into the land for 
the development of the land, whereby you are increasing the value 
of the land and developing the farm, and do you not think it would 
be rather aside from the purposes of this bill to lend money to per- 
sons for the purpose of speculation ? 

Senator Fletcher. As I said a moment ago, I do not know that 
we ought to set ourselves up to watch the use of the money too care- 
fully. If he is able to furnish security, I do not think we ought to 
inquire too closely what he shall do with the money. I would not 
want to encourage any class of people going into speculation or going 
into wild schemes. Primarily what you say is quite true, I think, 
Mr. Weaver, and that is one reason why we have this limitation 
mentioned here in the bill. 

Mr. Weaver. I am sure I agree with the Senator in his idea that 
it is for the individual to do what he wants to with his own. As old 
Falstaff said, "Shall I not take mine own ease in mine own inn?" 
The whole purpose of it is to provide money for the development of 
the farm. 

Senator Fletcher. To provide cheaper money for that purpose. 

Mr. Hayes. Yes; but some of us are not particularly anxious to 

I>rovide cheaper money for him if it is going to raise the price of farm 
and and make it harder for the accomplishment of the purpose we 
all have in view, which is to make it possible for a man who has not 
much money to secure land and equip it for profitable operation. 

Senator Fletcher. That is one reason why we thought best to 
specify the purposes. 

Mr. Platt. If you own a farm, this will enable you to sell it at a 
higher price. 

Mr. Hayes. I know, and I own a farm, all right, but I am not think- 
ing of my own individual interests in this case. 

Mr. Moss. Do you not believe that the provision in the bill that no 
man can borrow more than 50 per cent of the value of his land will, in 
itself, check speculation very largely ? 



54 RURAL CREDITS. 

Senator Fletcher. 1 think so. That is also one of the effects. 

Mr. Moss. In other words, the man is not going to speculate very 
much when he has to put up $2 to get $1. 

Mr. Hayes. That is the case now. You have to put up about $2 
to get $1 if you want to go to a bank and borrow money to-day on 
real estate. 

Mr. Brown. Is there any limit in your bill, or do you think there 
should be one, of the amount any one individual can borrow or should 
borrow ? 

Mr. Platt. That is not in the bill. 

Senator Mollis. It does not occur to me that there should be any 
limit to any man's borrowing on land when the land answers the debt 
rather than the individual. Of course on commercial loans they have 
to look pretty strictly to that. But I did have an impression there 
was something of that sort in this bill. 

Mr. Brown. I did not catch it when I ran over it. 

Mr. Coulter. There is no limit to the amount one man can borrow, 
but no bank can lend more than a certain per cent of its capital to any 
one person. 

Mr. Brown. It is the other way, then. 

Mr. Platt. It could not be used to any extent on a 10,000-acre 
farm? 

Mr. Coulter. A man has to divide the farm up and get it on 
separate mortgages. 

Senator Fletcher. I think that is the only limitation, Mr. Brown. 

Mr. Brown. That answers practically the same purpose, if the 
bank is limited in the amount of the loan. 

Senator Fletcher. Yes. I was looking to see the particular 
sections of the bill. 

Mr. Weaver. In some States individual landowners hold great 
bodies of land. For instance, in Texas I know of one tract of 
420,000 acres near San Angelo. 

Senator Fletcher. This is the provision in the bill that I think 
answers your question, under section D, page 61 of the document 
380: 

No national farm-land bank shall at any time loan any money upon the face or 
credit or upon the assignment of its own stock or of the stock of any other national 
farm-land bank; nor shall any national farm-land bank loan to or on the credit of 
any one individual or institution, either on the security of land or on any other security, 
an amount in excess of 20 per cent of the sum of its then paid-in capital and surplus. 

Senator Hollis. Is there any other question that anyone would 
like to ask Senator Fletcher ? 

Senator Lee. I want to inquire about one suggestion made by 
Senator Fletcher, which is this question of taxation, which has not 
been entered into very largely. 

Senator Fletcher. We follow, practically, in the proposed bill, 
the provisions of the Federal reserve act. 

Senator Lee. Of course, national-bank stock is subject to taxation, 
and then stock owned by another bank would be the property of 
the national bank, and would not be subject to taxation. We had 
a very acute, long-standing controversy over this question of bank 
taxation, and it has developed some peculiar phases, and shows how 
deeply interested the financial institutions are m the question of taxa- 
tion, and it resulted in some litigation that I started myself in my 



RURAL CREDITS. 55 

own county. We got the State divided into two groups, so as to 
keep the banks under a separate law, and the effect of which is that 
certain exemptions are allowed in Baltimore City that are not allowed 
in other parts of the State. The contention was that the exemptions 
were unlawful, and contrary to the provisions of the constitution of 
the State for equal taxation, and the result of it was that there was, 
particularly in some portions of the country, no corporate tax. It 
showed how close a margin the financial system is operating on, and 
in some places you can see, yourself, how important it is. You get a 
county tax of 90 cents or a dollar, and a State tax of 31 cents, and you 
might have a municipal tax of $2, and it will readily run your banking 
costs up to a fixed charge for taxation of over 3 cents. The question 
arises, if you have a national bank or a State banking system subject 
to a taxable burden, and you put in competition with that system 
another type of bank or money-lending institution, exempted from 
all taxation, you are going to increase the demand for absolute 
freedom from taxation for other financial institutions, which will 

Erobably lead up to a demand for a repeal of all taxation on national 
anks. Other banks take the position now, all the banks of Balti- 
more, that all of their taxes should be reduced to a dollar basis, and 
in the last four sessions of our legislature there has been a bill urged 
by the Baltimore banks to the effect that all their taxation — munici- 
pal, State, and county — should be reduced to a dollar basis, and they 
all claim that the New York banks are on that basis to-day, and the 
Philadelphia banks are on that basis. The great issue of our banks 
has come under their demand for not only a dollar basis, but a reduc- 
tion of that dollar basis of all exempted securities, which would 
reduce the banks to the position of having no taxes at all. 

So you see, gentlemen, if you are going to go into this question of 
taxation, it is one of the most fundamental and far reaching aspects 
of the whole plan. 

Senator Fletcher. It is in our section 18 where we refer to the 
exemption of capital stock, and it is similar to the provision con- 
tained in the Federal reserve act. We look at it this way: If the 
mortgages have to pay taxes, then, undoubtedly, the man who 
makes the mortgage has got to pay it, generally speaking, and it 
means it comes out of the farmer, and we thought that mortgages 
ought to be exempt from taxation. 

Senator Lee. If you have a strictly limited basis, so that, aside 
from the operating expense, there can be no profits accruing to any 
one except an absolutely limited amount of profit, that might be 
very well; but if you have in business an institution where the 
margin of profit for the people who are operating it is on a different 
basis from the margin of profit of the commercial bank, that very 
margin of profit is going to attract this capital. You either get it 
or j£ou do not get it on that margin of profit. 

Mr. Platt. That is practically the only special privilege that there 
is in the bill, is it not ? 

Senator Fletcher. Exemption from taxation? 

Mr. Platt. Yes. 

Senator Fletcher. And then making them fiscal agents, in a way, 
and allowing deposits. 

Senator Owen. Making them depositors for postal receipts and 
postal savings, is it not ? 



56 RURAL CREDITS. 

Senator Fletcher. Yes; and then making them investments for 
trustees and guardians. 

Mr. Platt. That is not exactly a special privilege, because there 
are lots of other securities that are also in that last class of securities 
which can he invested in trust funds. 

Mr. Moss. When the State in which they are located passes certain 
legislation of a reciprocal character in its broadest sense, other se- 
curities can not be invested in trust funds, but can in these special 
instances where the State passes legislation desire by the commis- 
sioner of land banks ? 

Senator Fletcher. Yes; the commissioner of farm-land banks is 
given certain powers in connection with that privilege. 

Mr. Moss. The question of investment in trust funds is entirely 
under the regulation of the commissioner of land banks and is de- 
pendent upon reciprocal State legislation? 

Senator Fletcher. Yes. 

Mr. Platt. I think that is a very good provision. 

Senator Lea. Senator, it would seem more consistent if you would 
reduce these two systems, the central system of farm loans for farm 

Eurposes, to regulate it and make it free from taxation, than it would 
e for you to make it a' broader type of lending for all commercial 
purposes, to any one who would see fit to invest in these agricultural 
securities ? 

Senator Fletcher. Yes; that is true, I think. That is another 
reason why we felt like limiting the loaning of the money for certain 
purposes. 

Senator Owen. That is done in the bill, is it not; the money which 
is received is intended to be used for farm purposes ? 

Senator Fletcher. For three purposes, completing the payment 
of the purchase price, equipping and improving the farm, and paying 
off and discharging existing hens. 

Senator Lea. How do you operate that with regard to the bal- 
ance ? Has the farmer a checking right upon the balance on deposit ? 

Senator Fletcher. The bank will have to see to that. 

Senator Hollis. The bank will not make the loan until it is satis- 
fied with the security ? 

Senator Fletcher. Precisely, and the commissioner of farm-land 
banks is empowered here to make certain rules and regulations with 
reference to that. I think it can be met in that way, by rules and 
regulations prescribed by the commissioner of farm-land banks, and 
then the Government supervision. 

Senator Hollis. If there is nothing further we will adjourn until 
.to-morrow at half past 10, at the room of the Banking and Cur- 
rency Committee of the House. T believe Mr. Moss is going to ad- 
vise us to-morrow. We will consider that we adjourn until 10.30 
o'clock to-morrow. 

(The committee adjourned to 10.30 o'clock a. m., Tuesdav, Febru- 
ary 17, 1914.) 



TUESDAY, FEBRUARY 17, 1914. 

House of Representatives, 

Washington, D. C. 
The subcommittees assembled in joint session at 11 o'clock a. m., 
Hon. Robert J. Bulkley presiding. 

Present also Senator Henry F. Hollis and Representatives Brown, 
Stone, Seldomridge, Hayes, Woods, and Piatt. 

By direction of the chairman the so-called Fletcher bill (S. 4246) 
is incorporated in the record as follows: 

A BILL To provide for the establishment, operation, and supervision of a national farm- 
land bank system in the United States of America, for the creation of depositaries for 
postal savings and other public funds, and for other purposes. 

Be it enacted by the Senate and House of Representatives of the United 
States of America in Congress assembled, That the short title of this act shall 
be " National Farm-Land Bank Act." 

Sec. 2. That there shall be in the Department of the Treasury a bureau 
charged with the execution of all laws passed by Congress relating to the crea- 
tion and supervision of farm-land banks, the chief officer of which bureau shall 
be known as the commissioner of farm-land banks, and shall perform his duties 
under the general direction of the Secretary of the Treasury. 

Sec. 3. That the commissioner of farm-land banks shall be appointed by the 
President, by and with the advice and consent of the Senate, and shall hold 
office for the term of five years, unless sooner removed by the President upon 
reasons to be communicated by him to the Senate; and he shall be entitled to 
a salary of $6,000 a year. 

The commissioner of farm-land banks shall, within fifteen days of notice of 
his appointment, take and subscribe the oath of office, and he shall give to the 
United States a bond in. the penalty of $50,000, with surety or sureties to be 
approved by the Secretary of the Treasury, conditioned for the faithful dis- 
charge of the duties of his office. 

Sec. 4. That the Secretary of the Treasury, at the request of the commis- 
sioner of farm-land banks, may appoint one deputy commissioner, who shall be 
entitled to a salary of $3,500 per year, and who shall possess such powers and 
perform such duties under the commissioner as he shall direct. During a 
vacancy in the office of the commissioner, or during his absence or inability, the 
deputy commissioner shall possess the powers and perform the duties attached 
by law to the office of the commissioner. The deputy commissioner shall take 
the oath of office, and shall give a like bond in the penalty of $30,000. 

Sec 5. That the commissioner of farm-land banks shall adopt a seal of office 
to be approved by the Secretary of the Treasury, a description of which seal, 
together with an impression thereof and a certificate of approval thereof signed 
by the Secretary of the Treasury, shall be filed in the office of the Secretary of 
State. 

Sec. 6. That there shall be assigned from time to time to the commissioner 
of farm-land banks by the Secretary of the Treasury rooms for conducting the 
business of the bureau of farm-land banks, containing safe and secure fire- 
proof vaults in which the commissioner shall keep all original articles of asso- 
ciation and other valuable documents and things belonging to his department; 
and the commissioner shall from time to time furnish the necessary furniture, 
stationery, and other proper conveniences for the transaction of the business of 
his office. 

57 



58 RURAL CREDITS. 

The commissioner shall employ from time to time the necessary clerks, to 
be appointed and classified by the Secretary of the Treasury, to discharge such 
duties as the commissioner shall direct 

Sec. 7. That it shall not be lawful for the commissioner or deputy commis- 
sioner, or for any clerk employed in the bureau of farm-land banks, either 
directly or indirectly, to be interested in any farm-land bank formed pursuant 
to the provisions of this act. 

Sec. 8. That the commissioner shall make an annual report to Congress at 
the commencement of its session, exhibiting — 

First. A summary of the state and condition of every farm-land bank from 
which reports have been received during the preceding year, at the several 
dates to which such reports refer, with an abstract of the whole amount of 
mortgages or deeds of trust held by them and collateral trust bonds (herein- 
after described as national land-bank bonds) issued by them, the whole amount 
of their other assets and liabilities, the amount of their capital stock, and such 
other information in relation to such companies as in his judgment may be 
useful or as may be requested by Congress. 

Second. A statement of the companies whose business has been closed during 
the year, with the amount of their mortgages or deeds of trust and of their 
national land-bank bonds redeemed and the amount outstanding. 

Third. Any other information which he may deem desirable to present and 
such special information as may be called for by Congress. 

Fourth. The names and compensation of the clerks employed by him, and the 
whole amount of the expenses of the bureau of farm-land banks during the 
year, together with a full and complete list of all officers, agents, clerks, and 
other employees of his office, including examiners, receivers, and attorneys for 
receivers, and clerks employed by them, or any other person connected with the 
work of said bureau in Washington or elsewhere whose salary or compensation 
is paid from the Treasury of the United States or assessed against or collected 
from existing or failed companies under supervision or control. 

When the annual report provided for in the last section is completed, or while 
it is in process of completion if thereby the business may be sooner dispatched, 
the work of printing shall be commenced under the superintendence of the 
Secretary of the Treasury, and the whole shall be printed and ready for de- 
livery on or before the first day of December next after the close of the fiscal 
year to which the report relates. There shall be printed not to exced ten thou- 
sand copies; one thousand for the Senate, two thousand for the House, and the 
remainder for distribution by the commission. 

Sec 9. That within ninety days after the approval of this act, or as soon 
thereafter as may be, the Secretary of the Treasury shall formulate and adopt 
the plans, rules, and regulations governing the operations of the bureau of 
farm-land banks, in accordance with this act, which plans, rules, and regula- 
tions shall be enforced by the said commissioner of farm-land banks. 

POWERS OF COMMISSIONER OF FARM-LAND BANKS. 

Sec. 10. That the commissioner of farm-land banks is authorized and empow- 
ered upon proper application to issue charters or certificates of incorporation 
for the establishment of national farm-land banks as herein provided for; and 
to exercise supervision and control over and make examinations of all of the 
national farm-land banks established under this act. under such general rules 
and regulations as may be orovided; and to withdraw or forfeit such charters 
or liquidate such banks whenever necessary, in accordance with rules to be 
provided, subject in all respects to the requirements and provisions herein 
contained. 

Sec. 11. That the said commissioner of farm-land banks is hereby authorized, 
by general rules and regulations to be approved by the Secretary of the Treas- 
ury, applicable alike to all the national farm-land banks organized hereunder, 
to specify the conditions under which the privileges herein authorized to be 
granted to all said national farm-land banks shall be extended to such banks; 
and particularly to provide for the extension of such privileges only to national 
farm-land banks operating in those States which, by the passage of suitable laws. 
have met the requirements of the said commissioner of farm-land banks (first) 
as to the simplification of land-title registration and conveyancing, (second) 
as to the simplification, promptness, and economy of methods of securing farm- 
land loans and of foreclosing the same, and as to other matters as more fully 



RUKAL CKEDITS. 59 

set out iii section thirty-four of this act. And the said commissioner of farm- 
land banks shall, by like general rules and regulations to be approved by the 
Secretary of the Treasury, have the power to specify the time when such rules 
and regulations or certain of them shall go into effect, and the time within 
which such conditions or certain of them must be complied with, and to extend 
such time, and to withhold such privileges or certain of them from the national 
farm-laud banks operating in any State failing to comply with the required 
provisions and regulations until the same are fully complied with. 

Sec. 12. That the commissioner of farm-land banks, by and with the approval 
of the Secretary of the Treasury, shall from time to time prepare and publish 
amortization tables, covering periods of from six to thirty-five years, at varying 
rates of interest, to meet all the requirements of the banks organized hereunder. 
Such tables shall be adopted and used by all of such banks as the basis of all 
repayments of long-term martgage loans herein provided for. 

INCORPORATION OF NATIONAL FARM-LAND BANKS. 

Sec. 13. That the associations for carrying on the business of farm-land bank- 
ing under this act may be formed by any number of natural persons, not less 
in any case than ten. They shall enter into articles of association, which shall 
specify in general terms the object for which the association is formed, and 
may contain any other provisions not inconsistent with law which the associa- 
tion may see fit to adopt for the regulation of its business and the conduct of 
its affairs. These articles shall be signed by the persons uniting to form the 
association, and a copy of them shall be forwarded to the commissioner of 
farm-land banks to be filed and preserved in his office. 

Sec. 14. That the persons uniting to form such a national farm-land bank 
shall, under their hands, make an organization certificate, which shall specifically 
state : 

First. The name assumed by such association. The words " national farm- 
land bank " shall be a part of the title of every such institution, and these words 
shall not be used by any institution other than those incorporated under this 
act : Provided, hoicever, That if the persons uniting to form such a national 
farm-land bank shall wish to apply cooperative principles in the formation and 
management of the same, the words " national farm-land bank, cooperative," 
shall be a part of the title ; and the word " cooperative " shall not be used by 
any national farm-land bank other than those which accept the following 
principles and provide in their by-laws that — 

(a) No stockholder shall own more than ten per centum of the share capital 
a.t any time. 

(b) At all meetings of the stockholders of such banking corporation each 
stockholder shall have one vote and only one on all matters pertaining to the 
organization or management of the institution, irrespective of the number of 
shares of stock owned by such stockholder. 

(c) The net earnings of such banking corporation available and set aside 
for the payment of interest and dividends shall be distributed as follows: 

To each owner of stock of such corporation may first be paid a dividend in 
the form of interest upon the par value of the shares of stock owned by such 
owner of stock, computed at the rate of interest generally prevailing in the 
community where such bank is located, but not exceeding the legal rate of 
interest in the State where such banking corporation is situated, if said earnings 
are sufficient for that purpose ; otherwise, to be paid to each owner of such 
stock pro rata computed upon the par value of such stock. The balance of 
such net earnings, if any, shall be distributed among the patrons of such bank- 
ing corporation in proportion to the amount of business transacted with such 
bank : Provided, however, That in such distribution the share-owning patrons 
may, if approved by a two-thirds vote, take dividends at a rate twice as great 
as that paid to the nonshare-owning patrons. 

(d) The shares of stock of such national farm-land banks, cooperative, may 
be of the par value of §25 each. 

(e) In all other respects such national farm-land banks, cooperative, shall 
conform to and be governed by the general laws as herein provided. 

The words "national farm-land bank" or "national farm-land bank, cooper- 
ative." shall be prefixed by such descriptive title or name as the applicants may 
indicate, subject to the approval of the commissioner of farm-land banks. 
Each said national farm-land bank shall be designated by an official number 
provided by the commissioner of farm-land banks. 



60 RURAL CREDITS. 

Second. The State in which the operations of such national farmland banks 
are to be carried on, and the place in said State where its principal office is to 
be located, which place may be changed from time to time upon the request of 
such national farm-land bank, with the approval of the commissioner of farm- 
land banks. 

Third. The amount of capital stock, and the number of shares into which 
the same is to be divided: Provided, That such capital stock shall in no c;ise 
be less than $10,000: And provided further, That such capital stock may be 
increased or decreased from time to time, subject to the approval of the com- 
missioner of farm-land bank's, but at no time to be less than th<> minimum herein 
set forth. 

Fourth. The names and places of residence of the shareholders and the 
number of shares held by each of them. 

Fifth. The fact that the certificate is made to enable such persons to avail 
themselves of the advantages of this act. 

Sec. 15. That the organization certificate shall be acknowledged before a 
judge of some court of record, or before a notary public, and shall be. together 
with the acknowledgment thereto, authenticated by the seal of such court or 
notary public, transmitted to the commissioner of farm-land banks, who shall 
record and carefully preserve the same in his office. 

Powers and Limitations of National Farm-Land Banks. 

general powers. 

Sec 16. That upon duly making and filing the articles or' association and 
an organization certificate, the association shall become, as from the date of 
the execution of its organization certificate, a body corporate; and as such, 
and in the name designated in the organization certificate, shall have power: 

First. To adopt and use a corporate seal. 

Second. To have succession for the period of fifty years from its organiza- 
tion, unless it is sooner dissolved according to the provisions of its articles of 
association or by the act of its shareholders owning two-thirds of its capital 
stock; except that, in the case of cooperative farm-laud banks, a vote of two- 
thirds of the stockholders shall be necessary, or unless its franchise becomes 
forfeited by some violation of law: Provided, That the charters of all national 
farm-land banks shall be at all times subject to change, amendment, or repeal 
under general laws enacted by Congress: Provided, That no such change, amend- 
ment, or repeal shall in any way affect the rights of the creditors of such 
national farm-land banks. 

Third. To make contracts. 

Fourth. To sue and be sued, complain and defend, in any court of law and 
equity as fully as natural persons. 

Fifth. To elect or appoint not less than five nor more than nine directors, 
and by its board of directors to appoint a president, vice president, and other 
officers, to define their duties, require bonds of them, and fix the penalty 
thereof, dismiss such officers or any of them at pleasure, and appoint others 
to fill their places: Provided. That the officer herein described as Federal 
fiduciary agent shall not be subject to removal by the board of directors or 
officers of said bank, but shall be subject to removal only by the commissioner 
of farm-land banks. 

Sixth. To prescribe by-laws not inconsistent with law regulating the manner 
in which its stock shall be transferred, its directors shall be elected or ap- 
pointed, its officers elected or appointed, its property transferred, its general 
business conducted, and the privileges granted to it by law exercised and en- 
joyed, except that in the case of cooperative farm-land bauks the by-laws shall 
be approved by two-thirds of the stockholders before beinu: adopted and put 
into effect. 

Seventh. To exercise by its board of directors or duly authorized officers 
or agents, subject to law, all such incidental powers as shall be necessary to 
carry on the business of farm-land banking: Provided, That the powers of 
such association shall include the following specific powers ami shall be sub- 
ject to the following specific restrictions: 



RUEAL CREDITS. 61 

A. SPECIFIC POWEBS. 

Every national farm-land bank shall have the following specific powers: 

(a) To accept and pay interest on deposits to an amount not exceeding fifty 
per centum of the amount of its combined paid-up capital and surplus; to 
receive deposits of postal savings funds to the same extent and to pay interest 
thereon at the rate required of other banks receiving such deposits. The 
trustees of the Postal Savings System are hereby authorized and empowered 
to select national farm-land banks as depositories for such funds, which banks, 
when required by the Secretary of the Treasury, shall act as fiscal agent of the 
United States. 

(b) To make loans upon farm lands anywhere within the State in which such 
national farm-land bank is operated : Provided, 

First. That such loans are made for not more than thirty-five years. 

Second. That such loans are secured by a first mortgage or first deed of trust 
on farm lands. 

Third. That such loans shall be made for any of the following purposes: 
(a) To complete the purchase of the agricultural lands mortgaged; (b) to im- 
prove and equip such lands for agricultural purposes; (c) to pay and discharge 
debts secured by mortgages or deeds of trust on said lands. 

Fourth. That such loans do not exceed fifty per centum in amount in the case 
of improved farm lands, and do not exceed forty per centum in amount in other 
cases, of the value of the said lands ; to be determined by an appraisal, as pro- 
vided in this act. 

Fifth. That every such farm-land loan contain a mandatory provision for the 
amortization of such loan, or reduction of the same by annual or semiannual 
payments on account of principal : Provided, That the loan extends over a 
period exceeding five years. 

Sixth. That every such loan may be paid off in whole or in part by the bor- 
rower, in accordance with rules to be prescribed by the commissioner of farm- 
land banks, at any interest period, after such loan has continued for five years, 
by the payment of the whole or a part of such loan, with interest to such date, 
after crediting the amortization payments on the same, as and when they were 
made. 

(c) To issue, sell, and trade in its own collateral trust bonds which shal,l be 
known and described as "national land-bank bonds" secured by the deposit, as 
elsewhere herein provided of first mortgages or first deeds of trust (and of notes 
or bonds secured thereby), in an amount equal at least to the face value of 
the national land-bank bonds so issued and sold by the said bank: Provided, 

First. That the rate of interest upon the farm-land loans evidenced by the 
mortgages or deeds of trust held by the bank as security for its own national 
land-bank bonds shall not exceed the rate of interest paid on such national 
land-bank bonds by more than one per centum annually upon the amount unpaid 
on the loan, which said one per centum shall cover all charges of administration. 

Second. That all national land-bank bonds issued by the said bank shall be 
payable on a date specified and shall be subject to call at par, at any interest 
period, after the date of issue, or after a specified time, by such proper notice 
and advertisement as may be provided by the commissioner of farm-land banks. 

Third. That such national land-bank bonds shall be always protected by 
the deposit, as security therefor, of at least an equal amount in face value of 
first mortgage or first deed of trust farm loans (and of notes or bonds secured 
thereby), maturing not less than five years after their date. 

Fourth. That as vhe amortization payments are credited upon the first mort- 
gage or first deed of trust farm loans so deposited as security, the national 
land-bank bonds issued by the bank and secured thereby shall be called and 
paid, or purchased in the open market and retired, to the extent of the credits 
made upon such first mortgage or first deed of trust farm loans held as security 
for the same, under rules and regulations made by the commissioner of farm- 
land banks. 

Fifth. That the first mortgage or first deed of trust farm loans (and the notes 
and bonds secured thereby) field as security for such national land-bank bonds 
shall at all times be in the joint possession and under the joint control of the 
said bank and of the Federal fiduciary agent hereinafter provided for, and that 
a register of such first mortgages or first deeds of trust shall be at all times 
kept by the bank, entries or cancellations in which shall only be made with the 
approval in writing of such Federal fiduciary agent. 



62 RURAL CREDITS. 

Sixth. That no national land-bank bond shall be issued against any mortgage 
or deed of trust (or notes or bonds secured thereby) which falls due earlier 
than five years after its date. 

(d) To use its capital slock, surplus, and deposits as a revolving fund for the 
temporary purchase or holding of such firsi mortgage or first deed of trust farm 
loans; or to use the same Cor the purpose of buying in its national land-bank 
bonds and of holding them temporarily, so as to maintain the price of the same: 
or to loan its capital and surplus on first mortgages or first deeds of trust for 
a period not exceeding five years: Provided, That not to exceed fifty per centum 
of such capital and surplus may be permanently invested in such national land- 
bank bonds and in first mortgage or first deed of trust farm loans, and the re- 
mainder of the capital and surplus can be permanently invested only in United 
States Government bonds, in the bonds of the State in which such bank is 
operating, or in such other securities as may be authorized by the connnissoner 
of farm-land banks. 

(e) To buy and sell gold and silver coin and bullion; to collect notes, drafts, 
and bills of exchange ; to discount commercial and other short-term paper and 
deal in national land-bank bonds of other farm-land banks with its deposits; 
to keep reciprocal accounts with other banks; to rediscount its commercial and 
other short-term paper with other banks; and to carry on a general banking 
business so far as its current deposits are concerned : Provided, That such de- 
posits do not exceed fifty per centum of its capital and surplus, except as else- 
where herein specfied : Provided, however, That farm-laud banks, cooperative, 
may for and with their stockholders also do and transact the business now 
possessed and exercised by national banks under the laws of the United States, 
under such rules and regulations as may be prescribed by the commissoner of 
farm-land banks. 

!!. SPECIFIC LIMITATIONS. 

Every national farm-land bank shall be subject to the following specific 
limitations: 

(a) The amount of national land-bank bonds that may be issued and out- 
standing at any one time by such national farm-land bank shall not exceed 
fifteen times its capital and accumulated surplus. 

(b) The charges of administration imposed by such national farm-land bank 
upon the borrower for handling such loan shall not in each instance exceed an 
annual charge of one per centum upon the amount unpaid on the loan. 

(3) The payments to be made annually or semiannually by the borrower 
shall in all cases be sufficient to pay the interest charge upon the loan, the ad- 
ministration charges of the bank, and an amortization payment sufficient to 
retire and pay off the amount of the principal borrowed (as evidenced by the 
face of said first mortgage or first deed of trust and the notes or bonds secured 
thereby), at its maturity. 

(d) No national farm-land bank shall at any time loan any money upon the 
faith or credit, or upon the assignment, of its own stock, or of the stock of any 
other national farm-land bank; nor shall any national farm-laud bank loan to 
or on the credit of, any one individual or institution, either on the security of 
land or on any other security, an amount in excess of twenty per centum of 
the sum of its* then paid-in capital and surplus. 

Eighth. But no national farm-land bank shall transact any business except 
such as is incidental and necessarily preliminary to its organization until it 
has been authorized to commence business by the commissioner of farm-land 
banks. 

HOLDINGS OF REAL ESTATE. 

Sec. 17. That national farm-land bank may purchase, hold, and convey real 
estate for the following purposes and for no others: 

First. Such as shall be necessary for its immediate accommodation in the 
transaction of its business. 

Second. Such as shall be mortgaged to it by way of security for loans made 
by it, as elsewhere herein provided. 

Third. Such as shall be conveyed to it in satisfaction of debts contracted in 
the course of business dealings. 

Fourth. Such as it shall purchase at sale under judgments, decrees, or mort- 
gages or deeds of trust, held by the bank, or shall purchase to secure debts 
due to It. 



RURAL CREDITS. 63 

But no such bank shall bold tbe title and possession of any real estate con- 
veyed to or purchased by it to secure any debts due to it for a longer period 
than five years. 

EXEMPTION FROM TAXATION. 

Sue. 18. That every national farm-land bank incorporated under the terms of 
this act and the capital stock and surplus therein and the income derived there- 
from and the mortgages and deeds of trust (and the notes and bonds secured 
thereby) held by said bank and the national land-bank bonds issued by the 
same shall be exempt from Federal State, and local taxation, except in respect 
to taxes upon real estate. 

FEDERAL FIDUCIARY AGENT. 

Sec. 19. That the commissioner of farm-land banks shall at the time of or- 
ganization of each national farm-land bank designate some individual who is 
not an officer or director of the bank, and who is not objectionable to the 
directors of the bank, as a " Federal fiduciary agent" for that bank, who shall 
also be the representative of the bureau of farm-land banks. As such Federal 
fiduciary agent he shall have the following powers and perform the following 
duties: 

First. He shall certify to each national land-bank bond issued by the said 
bank, and no national land-bank bond issued without his signature shall be 
binding upon the said bank 

Second. He shall have joint possession and control with the bank of the 
mortgages and deeds of trust (and of the notes and bonds secured thereby) 
which are deposited as security for the national land-bank bonds issued by the 
bank, and no mortgage or deed of trust (or note or bond secured thereby) so 
placed in the joint possession of himself and the said bank shall be withdrawn 
or changed or have any credit made thereon except by and with his consent in 
writing. 

Third. He shall have the supervisory control of all entries in the mortgage 
ledger kept by the bank, in which ledger shall be kept a detailed statement of 
each issue of national land-bank bonds made by the bank, and of all the 
mortgages or deeds of trust (and notes or bonds secured thereby) held by the 
bank and himself jointly, to secure the national land-bank bonds of the bank, 
as well of such other information as may be required by the bureau of farm- 
land banks. And no entry shall be made in tbe said mortgage ledger indi- 
cating either the deposit of mortgages or deeds of trust, the withdrawal or 
substitution of mortgages or deeds of trust, or credits on mortgages or deeds 
of trust so held by the bank, except by and with his approval in writing, 
which approval may be signified by signing his name on the margin of the page 
in the mortgage ledger where such entries are made. 

Fourth. He shall execute such bond with such security as may be required 
by the commissioner of farm-land banks. The salary and expenses of said 
Federal fiduciary agent shall be fixed by the joint agreement of the bank and 
of the commissioner of farm-land banks and shall be paid by the national 
farm-land bank with, which he is acting. 

CAPITAL STOCK. 

Sec 20. That the shares of stock of each national farm-land bank shall be 
©f the par value of $100 each, and each stockholder shall be entitled to one 
vote for each share of stock standing in his name: Provided, however. That in 
the case of national farm-land banks, cooperative, each stockholder shall be 
entitled to one vote, and only one, and the shares of stock may be of the par 
value of $25 each. Shareholders may vote by proxies duly authorized in 
writing ; but no officer, clerk, or employee of such bank shall act as proxy, 
and no shareholder whose liability is past due or unpaid shall be allowed to 
vote. Any national farm-land bank may be it by-laws authorize cumulative 
voting for directors. 

Sec 21. That at least fifty per centum of the capital stock of every national 
farm-land bank shall be paid in before it shall be authorized to do business, 
and the remainder of the capital stock of said bank shall be paid in, in install- 
ments of at least ten per centum each on the whole amount of the capital, as 
frequently as one installment before the end of each succeeding month from 



64 RURAL CREDITS. 

the time it shall be authorized by the commissioner of farm-land banks to com- 
mence business, and the payment of each installment shall be certified to the 
commissioner of farm-land banks, under oath, by the president or cashier of 
the bank. 

Sec. 22. That whenever any shareholder or his assignee fails to pay any 
installment on the stock when the same is required by the preceding section 
to be paid, the directors of such bank may sell the stock of such delinquent 
shareholder at public auction, having given three weeks' previous notice 
thereof in a newspaper of general circulation published in the city or county 
where the bank is located (or if no newspaper is published in said city or 
county, then in a newspaper published nearest thereto), to any person who 
will pay the highest price therefor, to be not less than the amount due thereon, 
with the expenses of advertisement and sale ; and the excess, if any, shall be 
paid to the delinquent shareholder. If no bidder can be found who will pay 
for such stock the amount due thereon to the association and the cost of 
advertisement and sale, the amount previously paid shall be forfeited to the 
association, and such stock shall be sold as the directors may order, within six 
months from the time of such forfeiture; and if not sold, it shall be canceled 
and deducted from the capital stock of the association. If any such cancella- 
tion and reduction shall reduce the capital of the association below the mini- 
mum of the capital required by law, or below one-fifteenth of its outstanding 
national land-bank bonds, the capital stock shall, within thirty days from the 
date of such cancellation, be increased to the required amount, in default of 
which a receiver may be appointed, according to the provisions of section 
fifty-two hundred and thirty-four of the Revised Statutes, so fas as it may 
be applied hereto, to close up the business of such bank. 

Sec. 23. That any bank formed under this act may, by its articles of association, 
provide for an increase of its capital from time to time, as may be deemed expe- 
dient, subject to the limitations of this act. But the maximum of such increase 
to be provided in the articles of association shall be approved by the commis- 
sioner of farm-land banks; and no increase of capital shall be valid until the 
total amount of such increase is paid in and until notice thereof has been 
transmitted to the commissioner of farm-land banks, who shall thereupon issue 
to such bank his certificate, specifying the amount of such increase of capital 
stock, with his approval thereof, and after it has been duly paid in it shall be 
treated as part of the capital stock of such association. 

Sec. 24. That any bank formed under this act may, by the vote of share- 
holders owning two-thirds of its capital stock, or in the case of national farm- 
land banks, cooperative, by the vote of two-thirds of the stockholders, reduce 
its capital to any sum not below the amount required by this act to authorize 
the formation of such a bank ; but no such reduction shall be allowed which 
will reduce the capital and surplus of the association below one-fifteenth of its 
outstanding national land-bank bonds as herein provided ; nor shall any such 
reduction be made until the amount of the proposed reduction has been re- 
ported to and approved by the commissioner of farm-land banks. 

BOARD OF DIRECTORS. 

Sec. 25. That the affairs of each bank shall be managed by not less than five 
nor more than nine directors. All directors shall be elected by the shareholders 
at a meeting to be held at any time before the association is authorized by 
the commissioner of farm-land banks to commence business, and afterwards at 
meetings to be held on any such date in January of each year as is specified 
therefor in the articles of association. The directors shall hold office for one 
year and until their successors are elected and qualified. 

Sec. l!<>. That every director must, during his whole term of service, be a 
citizen of the United States: and at least three-fourths of the directors must 
reside in the State or Territory in which the bank is located for at least one 
year immediately preceding their election, and must be residents therein during 
their continuance in office. Every director must own, in his own right, at least 
five shares of the capital stock of the bank of which he is a director. Any 
director who ceases to be the owner of five shares of stock, or who becomes 
in any other manner disqualified, shall thereby vacate his place. 

Sec. 27. That each director, when appointed or elected, shall take an oath 
that he will, BO far as the duty devolves on him. diligently and honestly ad- 
minister the affairs of such bank, and will not knowingly violate or willingly 
permit to be violated any of the provisions of this act, and that he is the owner 



RURAL CREDITS. 65 

in good faith, and in his own right, of the number of shares of stock required 
by this act, subscribed for by him or standing in his name on the books of 
the bank, and that the same is not hypothecated or in any way pledged as 
security for any loan or debt. Such oath subscribed by the director making 
it, and certified by the officer before whom it is taken, shall be immediately 
transmitted to the commissioner of farm-land banks and shall be filed and 
preserved in his office. 

Sec. 28. That any vacancy in the board shall be filled by appointment by 
the remaining directors, and any director so appointed shall hold his place 
until the next election. 

Sec. 29. That if, from any cause, an election of directors is not made at the 
time appointed, the bank shall not for that cause be dissolved, but an election 
may be held on any subsequent day, thirty days' notice thereof in all cases 
having been given in a newspaper published in the city, town, or county in 
which the bank is located ; and if no newspaper is published in such city, 
town, or county, such notice shall be published in a newspaper published 
nearest thereto. If the articles of association do not fix the day on which the 
election shall be held, or if no election is held on the day fixed, the day for 
the election shall be designated by the board of directors; or if the directors 
fail to fix the day, shareholders representing two-thirds of the shares may 
do so, or in the case of national farm-land banks, cooperative, two-thirds of 
the stockholders may do so. 

Sec. 30. That one of the directors, to be chosen by the board, shall be the 
president of the board. One or more vice presidents shall likewise be chosen 
by the board. 

LIABILITY OF STOCKHOLDERS. 

Sec 31. That the shareholders of every national farm-land bank shall be held 
individually responsible, equally and ratably, and not one for another, for all 
contracts, debts, and engagements of such bank, to the extent of the amount 
of their stock therein, at the par value thereof, in addition to the amount in- 
vested in such shares, unless, in the case of national farm-land banks, coopera- 
tive, by a two-thirds vote of the stockholders a larger liability shall be under- 
taken. 

Sec. 32. That persons holding stock as executors, administrators, guardians, 
or trustees shall not be personally subject to any liabilities as stockholders; but 
the estates and funds in their hands shall be liable in like manner and to the 
same extent as the testator, intestate, ward, or person interested in such trust 
funds would be if living and competent to act and hold the stock in his own 
name. 

CONVERSION OF EXISTING LAND-MORTGAGE COMPANIES AND OTHER STATE INSTITU- 
TIONS INTO NATIONAL FARM-LAND BANKS. 

Sec. 33. That any land-mortgage association or corporation, or any similar 
institution, including building and loan associations or savings and loan asso- 
ciations lending exclusively on farm mortgages, now incorporated under the 
general or special laws of any State, may become a national farm-land bank 
under this act, under a suitable name, upon complying with the provisions of 
this act; and in such case the articles of association and the organization 
certificate may be executed by a majority of the stockholders of the existing 
institution, and the certificate shall declare that the owners of two-thirds of the 
capital stock of the old institution have authorized the directors to make such 
certificate and to change and convert the institution into a national farm-land 
bank. The majority of the directors, after executing the articles of association 
and organization certificate, shall have power to execute all other papers and 
to do whatever may be required to make its organization perfect and complete 
as a national farm-land bank. The directors of the old company may continue 
to be the directors of the national farm-land bank until others are elected or 
appointed, in accordance with the provisions of this chapter. When the com- 
missioner of farm-land banks has given to such association a certificate 
under his hand and official seal, after the provisions of this bill have been com- 
plied with and after it is authorized to commence the business of farm-land 
banking, the bank shall have the same powers and privileges and shall be 
subject to the same duties, responsibilities, and rules, in all respects, as are 
prescribed for other banks originally organized as national farm-land banks, 
and shall be held and regarded as such a national farm-land bank: but no such 

37031—14 5 



66 RUEAL CREDITS. 

bank shall have a less capital than the amount prescribed for national farm- 
land banks organized under this act, and no such corporation shall be authorized 
to do business as a national farm-land bank until the amount of its outstanding 
collateral trust bonds is so reduced that it does not exceed fifteen times the 
capital and surplus of the said bank and until it complies in all other respects 
with the provisions of this act. 

PRIVILEGES GRANTED TO NATIONAL FARM-LAND HANKS. 

Sec. 34. That the national land-bank bonds of any national farm-land bank 
shall be available for the following purposes: 

First. As security for the deposit of postal savings funds in such national 
farm-land banks and sill other banks authorized to receive such deposits. 

Second. As a legal investment for time deposits of national banking associa- 
tions, as provided in the Federal reserve act, and for the funds accumulated 
in savings banks organized and doing business in the District of Columbia. 

Third. As a legal investment for trust funds and estates under the charge of 
or administered by any of the courts of the United States. 

Fourth. As a security for loans from national banking associations to na- 
tional farm-land banks or to individuals, for not exceeding five years, to an 
amount aggregating not over twenty-five per centum of the capital and surplus 
or to one-third of the time deposits of the national banking association making 
such loan. Such loans to be made and beld by the national banking associa- 
tion making the same, as being within the provisions of section twenty-four 
of the Federal reserve act, so as to permit national banking associations to 
lend to national farm-land banks, on their obligations secured by their national 
land-bank bonds, in place of making the loan directly on farm lands, as pro- 
vided for in said section. 

The foregoing privileges (or such of them as the commissioner of farm-land 
banks, with the approval of the Secretary of the Treasury, may, by general 
rules applicable to all banks organized hereunder, from time to time designate) 
shall apply to national land-bank bonds issued under authority of this act 
only as and when the following conditions (or such of tbem as the commissioner 
of farm-land banks, with the approval of tbe Secretary of the Treasury, may 
from time to time by like general rules designate) are likewise put into effect 
in any State or States : 

(a) That laws decided to be sufficient by the bureau of farm-land banks 
have been enacted by tbe State in which such national farm-land bank is 
operating, withdrawing or canceling the right to claim exemption, or providing 
for the waiver of such exemption, whether homestead or otherwise, against 
the mortgages or deeds of trust (or notes or bonds secured thereby) held as 
security for the national land-bank bonds of such national farm-land bank: 
Provided, That if the right to waive such exemption is given, then that all the 
mortgages or deeds of trust (and bouds or notes secured thereby) deposited 
as security for such national land-bank bonds contain such waiver. 

(b) That in the judgment of the commissioner of farm-land banks the State 
laws providing for registration of land titles, conveyances, and foreclosures in 
any given State are such as to give reasonable protection to the holders of 
first mortgages and first deeds of trust on lands located within that State. 

(c) That the national land-bank bonds of all national farm-land banks 
which are accepted under tins law as security in the various matters above set 
out shall be likewise accepted, under the State laws of the State in which 
such national farm-land bank is operated, as a legal investment for tbe funds 
of savings banks operating in that State and of trust funds and estates held 
by or under the control of the courts of that State and as a legal investment for 
the reserves of insurance companies incorporated under or operating under 
the laws of that State. 

EXAMINATIONS. 

Sec. .';."",. That the commissioner of farm-land banks, with the approval of 
the Secretary of the Treasury, shall, as often as shall be deemed necessary or 
proper, indicate a suitable person or persons to make an examination of the 
affairs of every national farm-land bank, and shall have power to make a thor- 
ough examination into all the affairs of the bank, and in doing so to examine 
any of the officers and agents thereof on oath, and shall make full and detailed 
report of the condition of the bank to the commissioner of farm-land banks. 



EUEAL CREDITS. 67 

The person assigned to the making of such examination of the affairs of any 
national farm-land bank shall have the power to call together a quorum of 
the directors of such bank, who shall, under oath, state to such examiner the 
character and circumstance of such of its business as he may designate. The 
expense of the examinations herein provided for shall be assessed by the 
bureau of farm-land banks upon the banks examined in proportion to assets 
or resources held by such banks upon a date during the year on which such 
examinations are held, to be established by the bureau of farm-land banks. 
The provisions of section twenty-six of the Federal reserve act, prohibiting 
the making of any loan or granting any gratuity to the examiner of a national 
bank, sball apply with equal force to examiners of national farm-land banks, 
and the penalties and punishments therein provided shall be equally applicable 
to such examiners of national farm-land banks. 

Sec. 36. That the commissioner of farm-land banks shall require statements 
showing the condition of each bank to be published in a newspaper or news- 
papers published in the vicinity where the bank is located at such times as 
calls for such statements may be made by him, and in general conformity with 
the practice as to call for statements from national banking associations by the 
Comptroller of the Currency : Provided, That in the discretion of the Secretary 
of the Treasury any or all examinations of national farm-land banks may be 
made by examiners who are commissioned to examine national banking 
associations. 

DIVIDENDS. 

Sec. 37. That the directors of each national farm-land bank shall be author- 
ized to declare a dividend upon the outstanding and paid-up capital stock of 
such an institution out of the net earnings of the same: Provided, That in no 
case shall any dividend be paid which will impair the capital stock of the 
said institution, nor shall any dividend be paid which will reduce the amount 
of capital and surplus of each bank to less than one-flfteenth of the outstanding 
national land-bank bonds of the said bank: Provided, however, That in the case 
of cooperative farm-land banks the net earnings of such banking corporations 
available and set aside for the payment of interest and dividends shall be 
distributed as follows : To each owner of stock of such corporation may first 
be paid a dividend in the form of interest upon the par value of the shares 
of stock owned by such owner of stock, computed at the rate of interest 
generally prevailing in the community where such bank is located, but not 
exceeding the legal rate of interest in the State where such banking corpora- 
tion is situated, if said earnings are sufficient for that purpose; otherwise, to 
be paid to each owner of such stock pro rata, computed upon the par value of 
such stock. The balance of such net earnings, if any. shall be distributed 
among the patrons of such banking corporation in proportion to the amount 
of business transacted with such bank : Provided, however, That in such dis- 
tribution the share-owning patrons may. if approved by a two-thirds vote, 
take dividends at a rate twice as great as that paid to nonshare-owning patrons : 
Provided further, That a special reserve fund shall be maintained by each 
national farm-land bank, which special reserve fund shall be created out of the 
net earnings of the bank and shall at all times be equal to five per centum of 
the total annual interest charge on the land-bank bonds which are outstanding 
against such bank at the close of the last fiscal year. Such special reserve 
fund shall not be disbursed for any other purpose except to meet arrears in 
interest payments on land-bank bonds issued by such bank. 

DIRECTORS' MEETINGS. 

Sec. 38. That the directors of each national farm-land bank shall meet at 
least once in each month, and at such other times as are necessary. They shall 
have power to appoint committees and to delegate to such committees such 
portion of their powers as may be necessary for the convenient operation of the 
bank, subject to the approval of the bureau of farm-land banks. 

APPRAISEMENT COMMITTEE. 

Sec 39. That the board of directors of each national farm-land bank shall 
immediately upon its organization, and before making any loans upon farm 
lands, appoint an appraisement committee, which shall be composed of three 



68 RURAL CREDITS. 

members of the board of directors. The names of said appraisement committee 
shall be at once delivered to the commissioner of farm-land banks, and any 
change In the said committee shall be at once communicated to him. The duty 
of said committee shall be to appraise, or cause to be appraised, and report on 
the value of real estate offered as security for loans. All reports of the ap- 
praisement committee shall be made In writing, signed by a majority of the 
commit lee, and shall give a description of the property, the value at which it 
Is appraised by them, the value at which it is assessed for taxation, and such 
other information as may be required by the directors of the bank or by the 
commissioner of farm-land banks. Such report shall be filed and preserved 
with other papers relating to such loan, and no loan shall be made on any 
farm land unless and until such report in writing has been filed with the said 
bank. 

POSTAL SAVINGS DEPOSITS — DEPOSIT OF STATE FUNDS — RESERVES — LOAN OF CURRENT 

DEPOSITS. 

Sec. 40. That all national farm-land banks shall, upon the request of the 
board of trustees of the postal savings system, receive deposits of postal savings 
funds to the extent of one-half their capital and surplus, and pay interest 
thereon at the rate required to be paid by other banks on similar postal deposits. 

Sec 41. That the limitation on the amount of deposits which shall be received 
by national farm-land banks, by which they are prevented from receiving de- 
posits in excess of fifty per centum of their capital and surplus, shall not apply 
to deposits made with said banks by the Government in the shape of postal 
savings deposits or other governmental deposits; nor shall it prevent the said 
banks from receiving deposits of State funds. On all time deposits of whatever 
character the national farm-land banks shall maintain a cash reserve of at 
least five per centum, and on all check deposits shall maintain a reserve of at least 
twelve per centum, either in cash or in balances with other banks, under rules 
and regulations to be prescribed by the commissioner of farm-land banks. The 
postal savings deposits held by any such bank, except the five per centum reserve, 
may be invested only in first mortgage or first deed of trust loans on farm 
land, being secured to the Government by the deposit with it of the national 
land-bank bonds of any national farm-land bank complying with the rules of 
the commissioner of farm-land banks, approved by the Secretary of the Treas- 
ury, as prescribed in pursuance of the provisions of this act. The funds held 
on deposit by such banks for the State in which they operate may be invested 
as provided by the laws of such State. 

DESTRUCTIBLE PROPERTY TO BE INSURED. 

Sec. 42. That wherever the value of buildings or destructible property at- 
tached to the land is a part of the security for any loan, such buildings or 
destructible property shall be properly insured against loss by fire, and policies 
representing such insurance shall be properly assigned and deposited along 
with the mortgages under the joint control of the said bank and the Federal fidu- 
ciary agent. In such case provisions shall be made in the mortgages or deeds 
of trust for the payment by the borrower of an amount sufficient to pay the 
premiums on such insurance policies, in addition to the interest, amortization, 
and administration charges to be paid by him as herein set out. In appraising 
property for loans the buildings and destructible property shall not be valued 
at more than twenty per centum of the total appraisement. 

BRANCH BANKS. 

Sec 43. That no national farm-land bank shall be authorized to operate 
branches, but each said institution may, with the approval of the commissioner 
of farm-land hanks, employ and maintain loan agencies throughout the State in 
which it is operated. 

SALES AGENCIES. 

Sec. 44. That any national farm-land bank may, with the consent of the 
commissioner of farm-land banks, maintain either within the State in which 
it is operating, or elsewhere, sales agents or agencies for the sale of its na- 
tional land-hank bonds or for trading in the same. 



EURAL CREDITS. 6 b 

HOW PERIODIC PAYMENTS MADE BY BORROWER ON MORTGAGE TO BE DETERMINED. 

Sec. 45. That to the rate of iDterest to be borne by the natioual land-bank 
bonds to be issued by the bank shall be added the administration charge, to- 
gether with a charge sufficient to amortize the loan by the time of its maturity, 
and in this way the periodic payment to be paid by the borrower on his mort- 
gage shall be fixed, and this shall be set out in every mortgage and shall not be 
changed during the term thereof. 

LOANS MAY BE PAID WITH NATIONAL LAND-BANK BONDS OF SAME SERIES — BANK 
MAY BUY IN ITS NATIONAL LAND-BANK BONDS AND HAVE CORRESPONDI NG AMOUNT 
OF MORTGAGES RELEASED. 

Sec. 46. That any borrower shall be entitled to pay off the amount of his 
mortgage or any portion thereof by presenting to the bank, on any interest 
period after the first five years, the national land-bank bonds of the bank of 
the same series as those issued against his mortgage. To the extent of such 
national land-bank bonds presented and canceled at such time, the borrower 
shall be relieved of his mortgage indebtedness and proper credits shall be made 
upon his mortgage. The Federal fiduciary agent shall evidence such credit. 
The bank issuing such national land-bank bonds shall also have the right at 
any time to buy in the open market its national land-bank bonds and to cancel 
the same, and thereupon to release a proportionate amount of the mortgages 
securing such national land-bank bonds. But in case any of such national land- 
bank bonds of the bank are called for payment by the bank, as hereinbefore 
provided, then the same must be paid off by the bank at par. 

Sec. 47. That whenever the borrower pays his debt in full the bank shall 
promptly satisfy and discharge the lien of record. 

GENERAL POWERS GIVEN TO COMMISSIONER OF FARM-LAND BANKS. 

Sec. 48. That the commissioner of farm-land banks, by general rules and 
regulations, shall prescribe the methods of keeping the mortgage register; of 
holding and preserving the mortgages and the bonds secured by deed of trust 
in the joint possession of the bank and of the Federal fiduciary agent; of credit- 
ing payments on mortgages; of canceling mortgages; and of releasing the liens 
of mortgages in whole or in part; and the general rules and regulations for the 
conduct of the institutions provided for under this act. Such rules and regula- 
tions not in conflict with the provisions of this act shall be binding upon all 
the banks created under the same. 

Sec 49. That all matters relating to the organization and operation of said 
national farm-land banks created under this act shall be under the direction 
and control of the commissioner of farm-land banks, except as herein specified. 

PENALTIES FOR VIOLATION OF LAW. 

Sec. 50. That any officer, clerk, or agent of any national farm-land bank or 
any Federal fiduciary agent herein described, who commits any offense or mal- 
feasance, such as described in sections fifty-two hundred and eight and fifty- 
two hundred and nine of the Revised Statutes of the United States, and section 
thirteen of the act approved July twelfth, eighteen hundred and eighty-two, 
being the law relating to national banks, shall be punished upon conviction as 
prescribed in the said laws relating to national banks. 

Sec. 51. That all acts and parts of acts inconsistent herewith are hereby 
repealed. 

Mr. Bulkley. Now. Mr. Moss, if you are ready we will be glad to 
hear you. 

STATEMENT OF RALPH W. MOSS, A REPRESENTATIVE IN CON- 
GRESS FROM THE STATE OF INDIANA. 

Mr. Moss. Mr. Chairman and gentlemen of the committee, I am 
going to confine myself to the terms of the bill. I take it that the 
members of the committee fully comprehend the importance of the 



70 RURAL CREDITS. 

subject and also the urgency of the matter pending before the country. 
I feel, too, that the committee must be aware of the fact that the 
literature on this subject is readily available to each member of the 
committee, and I have no doubt that each member of the committee 
has read widely on the subject. I am not, therefore, going to dis- 
cuss the general features of it. Even though such discussion were 
necessary. Senator Fletcher's statement on yesterday would relieve 
that necessity largely. I had also intended to present some facts 
before the committee, especially bearing on the question of a uniform 
rate of interest all over the United States, but the necessity for that 
I feel has been largely obviated by the statement of Prof. Thompson, 
and I am gratified to find, on reading it carefully, that the conclu- 
sions I had reached myself and the conclusions the commission have 
reached are fully borne out by the investigation made by the De- 
partment of Agriculture through Mr. Thompson. And I would say 
to those members of the committee who have not already studied it 
carefully, that I think Prof. Thompson's statement is well worth 
a careful study of the facts there stated. 

And now this bill, as was stated yesterday, was drafted by a sub- 
committee consisting of Senator Fletcher, Dr. Coulter, and myself; 
then submitted to the full committee, and later submitted to the 
President and, by his request, was submitted to the Secretary of 
Agriculture. The Secretary of Agriculture, after some weeks of 
study, gave to the President a written opinion on the bill containing 
a suggestion I would like to call the committee's attention to at this 
time. 

On page 14, in clause 3 of the bill, is represented the principal 
criticism Secretary Houston had of the bill as originally submitted by 
the commission. I shall discuss that. Clause 3, on page 14, reads : 

That such loans shall be made for ;iuy of the following purposes: (a) To 
complete the purchase of the agricultural lauds mortgaged; (b) to improve 
and to equip such lands for agricultural purposes; and (c) to pay and discharge 
debts secured by mortgages or deeds of trust ou said lands. 

That clause was inserted in the bill at the suggestion of Secretary 
Houston and, as I understood it, with the approval of the President. 
Now, the purpose of that clause is very apparent, and grows out of 
the belief on the part of the Secretary of Agriculture that any pure 
credit institution would lend itself to the purposes of speculation, and 
that its results even might extend so far that it would lower the rate 
of interest to an extent which would cause a general rise of land 
values. If so, the advantage of the lower rate of interest would be 
consumed partly, at least, m the rise of the value of the land, and 
therefore the total interest charge might remain stationary, instead 
of falling to the borrower. 

I feel not only every member of the commission, but every member 
of this committee is in full sympathy with the purpose of this re- 
striction, and yet I do not believe that such results would follow if 
the clause were to be omitted. I feel that the Secretary of Agri- 
culture in suggesting this restriction acted with rather overdue 
caution. In support of this opinion, I want to give the reasons to 
the committee for my conviction. 

First, this bill is an instrument permitting voluntary contracts 
between parties. In other words, the loans are not forced — the bank 



RURAL CREDITS. 71 

is not forced to make the loan — and the borrower is not compelled 
to borrow. Therefore, before any loan can be negotiated there must 
be an agreement made between a lender and a borrower. 

Now, farmers do not mortgage their farms rashly nor hastily. In 
my State, in giving a mortgage on farm property, the wife must join 
with the husband, and the question of mortgaging a piece of real 
estate is well considered. 

We then have, first, the prudence of the borrower, and, next, the 
prudence of the lender. For, under the terms of this bill, for every 
$15 loaned, the bank must actually pledge $1 in paid-in capital and 
assume an additional dollar in liability. Now, a bank does not seek 
to make loans in order to foreclose, to gain the title to real estate. 
In fact, if any bank believed, when asked to make a loan, that in 
order to secure repayment of the loan it would have to foreclose, it 
would not make the loan. Banks will therefore be prudent about the 
loans. We thus have the prudence of the bank and the caution of 
the borrower combined in guarding against speculation. 

This restriction is difficult of administration. As a matter of fact, 
there is only one way in which such restrictions can be administered 
effectively, and that would be to make the bank the trustee of the 
borrower to supervise its expenditure. You would not consider that 
for a moment. Immediately the loan is made it can not be with- 
drawn. Its terms are fixed, and it is fixed for a long period of 
years. Under this bill the principal sum is absolutely secured; the 
man has the money in his pocket, and he can undoubtedly control 
it and do with it as he chooses. He may spend his money in any 
way he sees fit, unless you were to make the bank his trustee. Assum- 
ing, however, 99 per cent of the farmers are honest, it is argued that 
we can take this chance on the 1 per cent. But I want to call your 
attention to the fact that undoubtedly the man who has an easy con- 
science is the one who would use this bill for speculative purposes. 
So you restrict, in my judgment, the operations of the bank; you 
place restrictions upon the man who is borrowing the money, who is 
prudent, and at the same time you can not place restrictions upon 
the reckless man. And for thai reason I consider it a restriction 
which ought not to be written into the bill. 

And more than that. This bill is very closely restricted in its 
general terms, and there ought to be no additional restrictions placed 
further than are absolutety necessary. I trust that the committee 
will consider this point carefully ; and if you believe, when you con- 
sider this matter — because it is a question you must consider, in any 
bill you report, the question of the purpose of the loan must come 
up — that it is not necessary to declare the purpose of the loan in 
order to prevent speculation, I trust the bill will be reported by the 
committee without that restriction. 

Senator Holijs. Mr. Moss, you recall that in the banking and cur- 
rency bill which has already been passed, the purpose for which the 
notes may be rediscounted and made the basis of circulation is defi- 
nitely prescribed, and that is for the reason it is contemplated that 
the rediscounted notes may be the basis of circulation. But here 
there is no such purpose, so far as I know; and do you not imagine 
that Secretary Houston, perhaps, was influenced somewhat by the 
restrictions on the purpose of the loans in the Federal reserve act ? 



72 EUEAL CREDITS. 

Mr. Moss. That may be. I want to say, Senator, that a restriction 
on the purpose of the loan is proper and ought to go with all systems 
of personal credit, and I would not favor a system of personal credit — 
and I am going to discuss that with you in a few moments — that did 
not put a restriction upon personal loans as to the uses to which the 
borrowed money may be used. But on real-estate loans it is a differ- 
ent matter entirely. I desire to call the committee's attention to the 
fact that in every system of mortgage loans which I have studied, 
unless the funds have been advanced by the National Treasury for a 
specific purpose, there has been no limitation placed upon the pur- 
poses of the loan. 

France will loan $2,000 to any French subject for the purpose of 
acquiring a homestead, providing he does not own a homestead. The 
same Government will give a man a pension providing he lives on 
that farm until he is 65 years of age. And when I asked the reason 
for such provisions of law it was said France considered it was worth 
$2,000 to have a new farm home established, because of the large 
decrease in her farm population. 

Now, if the proposal were to advance the funds out of the Public 
Treasury, I agree at once there should be a restriction to certain de- 
clared purposes; but that has not been the idea of the commission. 
We are not endeavoring to do anything more than provide a system 
of favorable contracting between lender and borrower. Government 
supervision should see that the terms of the contract are faithfully 
carried out ; but it seems to me to be going too far to attempt to direct 
the expenditure of the money, and I do not believe it is necessary 
nor advisable to insert that clause which the Secretary of Agriculture 
has suggested. 

Mr. Hayes. Don't you think it would have this effect: It would 
serve as sort of a guide to the men who are desirous of being prudent ; 
for instance, the bank and the Federal agent? Now, you are an attor- 
ney, I presume ? 

Mr. Moss. No, sir. 

Mr. Hayes. I am, and I say to you that a man who came to a bank 
and desired that money for speculative purposes, a prudent banker 
or prudent Federal agent in charge of that bank with this condition 
upon it could, by a proper system of examination, find out if a man 
was going to use it for speculative purposes. So I believe it would be 
not, as you suggest, an unnecessary limitation ; but I believe it would 
be a very wholesome limitation and one that could be enforced and 
that would be enforced. 

Mr. Moss. I have just suggested a situation that came to my mind 
to the committee. 

Senator Hollis. What is your real objection to it, Mr. Moss? 

Mr. Moss. My real objection to it is in the operation of the bank. I 
do not believe it to be a simple task to organize these banks and set 
them to work, as a great man} 7 people seem to believe it will be. And 
I recall that in one bank — the Bavarian Mortgage Bank, which is 
the largest mortgage bank in Germany — that its prominence is due 
to the fact that it had one privilege which other competing banks do 
not have, namely, naming its own appraisers. The other banks of 
Germany must accept official appraisers, but this bank has a right 
to name their own appraisers. They claim they are able on this ac- 
count to give a little more favorable terms, and that such advantage 



RURAL CREDITS. 73 

has extended their business until it has overshadowed all other banks 
in Germany. 

I believe we ought to make it possible for these banks to operate 
with as few restrictions as possible with safety to their patrons. 
That is the commission's idea ; we wish to afford every possible means 
of competition among themselves, but impose no restrictions unless 
it is absolutely necessary to secure safety of operation. 

Mr. Bulkley. Now, Mr. Moss, there is another suggested restric- 
tion that seems to me very close to the point you are discussing. I 
would be glad to have you tell us what you think about limiting the 
amount an individual would be permitted to borrow from the bank. 

Mr. Moss. Yes; I will come to that in a moment; but there is one 
other matter. I wish to touch upon in answer to the Senator's ques- 
tion, and that is the bank will be under the control and will be 
supervised by Government agents like the national-bank examiners if 
this bill is adopted. Now, if the purpose of the loan is written in 
the law, it would give power to the supervising agent, the man who 
is examining the bank, to harass the management of the bank at 
times by insisting that the borrower is not carrying out the purpose 
of the loan, when it is beyond the power of the bank to compel him 
to do it ; and I fear that this might be used as a means of embarrass- 
ing the bank. The Government agent has the power under this bill 
to close the bank in just the same way as a national bank is closed. 
Here is a proposed limitation that the bank shall not loan except for 
certain purposes with no power on the part of the bank to see that 
the borrower carries out those particular purposes. You put it in 
the power of the borrower to violate the purpose for which the loan 
is made, and, it seems to me, the bank examiner might hold the 
management of the bank responsible for the violation of the law, 
which the bank could not prevent. I always did object and object 
now to imposing any penalty for a violation of a law when the per- 
son who is penalized can not prevent the violation. 

Mr. Hayes. Do you think there will be any opportunity for that 
being done provided they have the statement of the applicant for a 
loan, which they would have in writing, as to what the purpose of 
it was? 

Mr. Moss. That is a question that I am suggesting for the con- 
sideration of the committee. 

Mr. Hayes. I do not see how there would be. If there are any 
ether objections I wish you would suggest them, because that is quite 
an important point with me. 

Mr. Moss. I will state again, Mr. Hayes, that I am in entire sym- 
pathy with the purpose of the restriction, but I do not believe it is 
necessary. The natural prudence of the borrower and the caution 
of the lender, together with the further fact that the owner can only 
borrow 50 per cent of the value of the land, and that by enforced 
amortization he will have a higher rate to pay — all of these con- 
siderations, it seems to me, would absolutely put a check upon the 
speculative borrower. 

Mr. Seldomridge. Mr. Moss, I just want to ask Mr. Hayes a 
question. 

Mr. Moss. Yes. 

Mr. Seldomridge. Suppose a man gets some money under section 
3 and should be visited by some unforeseen occurrence — sickness or 



74 RURAL CREDITS. 

something of that kind — would not that tend to relieve him of the 
obligations of this clause? 

Mr. Hayes. Absolutely; of course. 

Mr. Seldomridge. But you put him under writing and under 
oath 

Mr. Hayes. Not under oath; no. 

Mr. Seldomridge. When he makes a written statement he practi- 
cally makes himself liable, it seems to me; and I have some sympathy 
with the position taken here by Mr. Moss. 

Mr. Hayes. Of course, I do not want to take Mr. Moss's time. 
You and I can discuss this later, but I do not look at it that way. 

Mr. Moss. Undoubtedly there are certain legitimate purposes and 
highly important purposes for which a loan would not be permitted 
under the fixed terms of this bill and that ought to be permitted 
under this system. I call your attention to the fact that the Depart- 
ment of Agriculture has just made an investigation and has reached 
the conclusion that 100 acres is the smallest unit which a man can 
farm efficiently in this country. In other words, in using machinery 
the Department of Agriculture has come to the conclusion that 100 
acres is the lowest acreage that can be handled efficiently under the 
conditions of farming in this country. Now, you will admit at 
once that the man with 40 acres might very reasonably and pru- 
dently wish to extent his area ; second, that if he has a family and 
children coming along, there will come a time when it may be neces- 
sary to mortgage his farm in order to acquire other farms for his 
children ; it sometimes comes down to a question that land must be 
purchased at a particular time or it can not be purchased at all — 
land which may adjoin his small tract — and it therefore happens 
that sometimes a man must foresee and be prepared to make a pur- 
chase; otherwise the opportunity will pass and he would be cut off 
under the restrictions of the bill from accepting these exceptional 
opportunities. 

Mr. Hayes. Why? 

Mr. Moss. Under this clause, to complete the purchase of agricul- 
tural lands mortgaged. Now, under that provision, strictly applied, 
he could not mortgage 80 acres of land to buy an additional 40. 

Mr. Hayes. I think that is a very narrow construction. 

Mr. Moss. It is a very obvious one. It is possible to work a very 
great hardship upon a person with a worthy purpose. A farmer 
under its provisions would be denied the privilege of purchasing that 
additional acreage to bring his farm up to the area recognized by 
the Department of Agriculture as the smallest unit which can be 
farmed efficiently. 

Mr. Woods. Mr. Moss, can you tell us how they came to that con- 
clusion ? 

Mr. Moss. I do not know how they came to that conclusion, but I 
can tell you why I will concur in that conclusion. In the first place 
we have gotten to a point in this country when forestry must be 
recognized. Every man must have a part of his land in forest, and 
a part of it must lie in pasture; you should have a rotation of crops; 
and you can not take less than 100 acres of land and divide it in 
fields so that you can handle machinery efficiently and organize a ro- 
tation of crops. I will put my reputation back of that statement. 



RURAL CREDITS. 75 

Mr. BuLKiiET. In that connection, Mr. Moss, in order to have it for 
the record, you are a practical farmer yourself, are you not? 

Mr. Moss. Yes, sir. I might say here, I was born on a farm, and 
I am living on the same farm on which I was born. What higher 
education I have was secured at Purdue University, which is an agri- 
cultural college, so that in my life, with the exception of my service 
in Congress and State senate, I have spent all of my time on the 
farm and associating with agricultural people. 

Mr. Woods. Do you not think a farm of 60 acres is as profitable as 
a farm of 100 acres? 

Mr. Moss. If you will take the word "profitable" and substitute 
the word " economical," I will say yes. A hundred acres is the 
minimum. That is what I am speaking about. As a matter of fact, 
if I have 80 acres of land I would give more than the adjoining 80 
acres was worth in order to get a farm of 160 acres, which can be 
worked more economically than a farm of 80 acres. In my section 
of the country a man would not willingly buy 80 acres of land for 
a farm. He would want a larger body of land. 

Mr. Hayes. You are speaking now of the ordinary farm land ? 

Mr. Moss. Yes. 

Mr. Hayes. In my State 20 acres would be the unit. Of course, I 
am not speaking of a farm proper. 

Mr. Moss. In answer to the question of the chairman, my judgment 
on the limitation of the loans is that the limitation has been put too 
low in this bill. Twenty per cent of the capital stock means a bank 
must have 75 borrowers borrowing at the maximum capacity in order 
to make the lowest issue of bonds it can make. In other words, sup- 
pose we take a bank with $10,000 capital and that bank issues 
$150,000 in land bonds, which they have the right to do, the largest 
amount it can loan to any one man under this bill would be $2,000, 
and therefore it would have to have 75 borrowers in order to loan up 
to its maximum capacity. 

Now, prudence does not require that $10,000 of capital shall be 
divided among 75 men as the fewest number there could be, nor is it 
reasonable in order to protect the bank. In addition, the maximum 
loan is too small. When I call your attention to the fact that in 
short-time loans Prof. Thompson gave it (hat the average loan to 
farmers was $044— that is, the average short-time loan — you can see 
that $2,000 is certainly too low for the maximum loan. If you take 
r bank with $100,000 capital or $250,000, that objection entirely dis- 
appears. I would suggest that the maximum be raised. 

Mr. Hayes. I should think $3,000 would be little enough. 

Mr. Moss. You are right about that. 

Senator Hoeets. Mr. Moss, do you think the same reason applies 
for limiting loans on real estate as applies to commercial loans? 

Mr. Moss. Yes; but, Senator, not in as large a degree, because 
there is a much greater hazard in commercial loans than in real 
estate loans. As this bill is written, the same limitation applies here 
that applies to national banks, and it is entirely too low. I will not 
say now what the limit should be, but it should be raised over the 
limit placed in the bill. 

Mr. Brown. Mr. Moss, is not $2,000 more than the average farm 
mortgage ? 



76 RURAL CREDITS. 

Mr. Moss. Dr. Coulter will come before your committee. He is an 
expert from the Census Bureau and can give you the figures exactly, 
and I can not. My understanding is that $1,700 is the average farm 
loan in the United States, but I would prefer that you wait until 
you can ask the question of Dr. Coulter. 

Mr. Platt. Mr. Bathrick gave the average as $1,700. 

Mr. Moss. As regards the average loan that could be made, I am 
just stating that a bank would have to have about 75 borrowers, 
each taking a maximum loan, before it could lend to the maximum 
capacity of its funds. That is the matter I am speaking of. 

Mr. Bulkley. Mr. Moss, there is one other question in connection 
with that same thing: A number of Members have been somewhat 
concerned because they fear that any system which will materially 
reduce interest rates will have as its principal effect an increase in 
land values. Now, would not we eliminate that by placing a limita- 
tion upon the amount that any one man could borrow? Would not 
that in itself tend to limit the use of these funds for speculative 
purposes ? 

Mr. Moss. That is true. But the purpose I had in mind in advo- 
cating a limitation, Mr. Chairman, was another and different pur- 
pose than that. I am going to discuss the rise in value later. My 
purpose was this, that in existing systems of mortgage loans, it has 
been a very simple question to get the small loans. The tendency 
has been to make large loans. If you do not limit the size of the 
loan, you will find when the sj'stem goes into operation, that the 
funds will flow toward the big borrower and not toward the little 
one. Now, then, in order to prevent that result, it is necessary to 
place a limitation on the size of loans in order to compel the banks 
to accommodate small borrowers. That situation has been so acute 
in some of the older systems, that banks have been organized by the 
Government expressly for the purpose of taking care of the little bor- 
rower. It is not any trouble for the big man to get a loan. I would 
advocate a restriction, but it occurs to my mind the restriction is too 
low at $2,000. 

Mr. Bulkley. You have not fixed it positively at $2,000 ? 

Mr. Moss. Under the present terms of this bill, that is the largest 
loan that could be gotten in a minimum bank. Of course, with a 
bank having $25,000 capital, it would be quite different, or with a 
bank having $50,000 capital, etc. Of course, 75 borrowers would 
exhaust the capital in any bank 

Mr. Bulkley. I understand that. But in addition to this restric- 
tion as to what any one bank can loan, should there not be the re- 
striction on the amount of money itself that any one individual can 
borrow ? 

Mr. Moss. If you did that. I think it would make the system en- 
tirely feasible and workable. I think that a good suggestion, Mr. 
Chairman. 

Mr. Bulkley. Have you anv thought as to what that limit should 
be? 

Mr. Moss. I have not, Mr. Chairman. This feature of the matter 
was discussed back and forth, and the figures on that phase of it Dr. 
Coulter, as an expert from the Census Bureau, can give better than I. 

Xow, coming back just a moment. I have in my hand the comments 
of the agricultural press on this bill, so far as I have been able to 



RURAL CREDITS. 77 

get them. It is well known that this bill has been given very wide 
publicity, and I have taken particular pains to secure the editorial 
comments of the agricultural press, so far as thej' have been made, 
both for and against the bill. I have done that because it is a difficult 
matter to get a correct expression of the agricultural thought, be- 
cause the farmers are not organized. There are certain persons 
whom I have met, claiming to speak for the farmers in an official 
capacity, some representing the grange and other farm organizations, 
and they are asking for certain features to be incorporated in this 
legislation. I came into possession of a letter, which I presume had 
been widely sent out suggesting that the farmers begin writing let- 
ters to their Representatives, a suggested copy of which was inclosed, 
in order to secure the passage of a certain bill. 

If you wish it, I will publish in the record those editorial com- 
ments, or the committee can read them. I call your attention to that 
feature in passing. 

Mr. Hayes. Will you state, in a general way, Mr. Moss, whether 
they are generally favorable to this bill? 

Mr. Moss. Yes. There is absolutely no criticism of the principle 
of the bill in any sense of the word in any of them, and in nearly 
every instance they are entirely favorable to the bill. The bill is not 
referred to as being a perfect one. Among the papers from which I 
have collected editorial comments are American Agriculturist, Na- 
tional Stockmen, American Farmer, Farmer's Review, Pennsylvania 
Farmer, Farm and Home, the Country Gentleman, Field and Farm, 
New England Homestead, the Orange Judd Farmer, the Georgia 
Farmer, the Nebraska Farmer, Campbell's Scientific Farmer, 
Farmer's Stock and Home, and Indiana Farmer. That is a list of 
papers which have made editorial comment upon it. 

Mr. Bulkley. I think those would be very interesting, Mr. Moss. 

Mr. Hayes. I think I have received a clipping from a paper sent 
me by a farmer, with a very strong indorsement, which you have 
not named there. 

Mr. Moss. Yes. Now, coming back to the discussion, we might 
leave out from our discussion of this matter to-day the demand for 
farm loans by the National Government. That was discussed yes- 
terday by Senator Fletcher. However, I want to call your attention 
to one or two additional features which, it seems to me, should pre- 
clude legislation, even if such legislation were constitutional. I am 
not a lawyer and will not discuss that phase of it. The first objec- 
tion and the supreme one is that the credit of the United States ought 
to be reserved for the purpose of maintaining the life of the Re- 
public. The power that enables the Government to go out and bor- 
row money at a low rate of interest is its unlimited power of taxa- 
tion over its people. And if a war were to come — which I trust may 
never happen — but if a war were to come, the only means for pro- 
viding for the defense of this Nation is its power to tax the people. 

My second objection is that in any country which is ruled by the 
power of the people through its representatives, a financial obliga- 
tion of the people to the government is more of a moral one than a 
legal one. I mean to say if there were a million people holding farm 
mortgages from the Government, and the Government desired to 
collect its money, no power on earth could compel the Government to 
go out and distrain the property of the people in times of adversity. 



78 RURAL CREDITS. 

Mr. Hayes. And therefore it would not get anything? 

Mr. Moss. It would not. This has been tried in France. When 
the failure in grape growing, due to phylloxera, caused bankruptcy 
in certain districts, there would have been a revolution in France if 
the Government had undertaken to collect its loans. The minister 
of France -aid to me privately — he would not put it in the record, 
but yet he said this in the presence of other gentlemen — that while 
the loans were legal, the obligation became purely a moral one; that 
the Government held the debts of its own people and it could not go 
and distrain the property of its own people in time of distress. 
And I am satisfied that you would find in our own country if a war 
were to break out and the Government should call a million men 
into the field, that w T e could not call the men away from their own 
farms and thus destroy their only means of discharging these loans, 
and, at the same time, compel them to pay their obligations to the 
Government. Anyone knows that to be true. 

And so the credit of the Government ought to the last moment to 
be sacredly kept for the defense of the Government. 

Mr. Bulkley. What would happen to those agricultural banks 
under those conditions, Mr. Moss? 

Mr. Moss. I am glad you spoke about that. The agricultural bank 
is the only institution in Europe that has stood the stress of warfare 
without any assistance whatever. 

Mr. Bulkley. How does that work out as a practical matter? 
Do they give additional time to the men called into the field? 

Mr. Moss. As to that I can not speak; but I think you will find 
in Europe that much of the work on the farm is done by women, 
and I doubt very much if war causes so great a strain on the income 
from the farm and the people were able to carry on their payments 
and to meet their obligations. 

If the National Government were to make a low rate, say 3 or 3£ 
per cent, which is clearly below competitive rates, it w T ill give the 
National Government absolutely a monopoly of this mortgage busi- 
ness. There is no question about that. It would have to make all 
the loans. And if it creates a monopoly of this business, it means 
that the credit of the National Government must borrow all of the 
money that would be needed; and I doubt, under those conditions, 
if even the National Government itself can borrow a sufficient 
amount at these very low rates. In other words, if we are to use 
the credit of the National Government, if it is to borrow billions of 
dollars, it will be a different proposition and rates will rise. We 
might notice that in time of war the rates of interest rise. While I 
was in Europe there was a war scare, and this scare raised the rates 
of interest to sill European governments. 

Mr. Platt. Every farm in the United States would have a mort- 
gage on it under a scheme of that kind, would it not? 
s Mr. Moss. I can not see any reason why that should not be the 
ultimate result. 

Now, then, in making a uniformly low rate on mortgage loans 
below that at which money is had in other industries, then at once 
you will cause a rise in the price of lands. That is without any doubt 
one of the chief objections which this proposition presents. It is 
not possible for the National Government to loan money to its citi- 
zens unless it loans to every one that meets all the conditions laid 



RURAL CREDITS. 79 

down; and as these conditions will of necessity be uniform all over 
the United States, and the rate is below what private money can be 
obtained for, you will cause a general rise in land values beyond any 
doubt. That is absolutely sure. 

Senator Hollis. Mr. Moss, can you see any reason why the Treas- 
ury Dpartment ought not to be authorized to use its discretion in 
depositing certain Government funds with these banks? 

Mr. Moss. No; I do not. I favor that provision, and it is con- 
tained in this bill. 

Now, I am going to call your attention, as an illustration, to 
Austria. Austria is one of the countries where mortgage loans are 
made by the Government. I mean the bonds of the bank are guar- 
anteed, not by the National Government, but by the provincial 
governments. Under this condition private mortgage banks have 
been driven out of the land-mortgage business, and yet the interest 
rate, even though the bonds are guaranteed by the Government, is 
no lower than it is in German} r , where they have purely competitive 
systems for the business. The interest rate the Austrian Govern- 
ment is paying for national purposes is also higher than that that 
the German Government is paying. It has been less than a year ago 
that the Austrian Government made a loan for national purposes in 
the United States at 6^ per cent. 

Mr. Platt. You do not think, then, Mr. Moss, that this system 
would necessarily drive all land-mortgage banks out of existence? 

Mr. Moss. No. I am sure it would not, and that is one of its ad- 
mirable features. 

The next question I shall discuss is the separation of the mortgage 
and personal loan. Upon that I have a very pronounced idea there 
should be a separation. Our commission at the beginning was di- 
vided upon that point, and the bill you have before you (S. 2909), 
by Senator Fletcher, was a bill combining the two propositions. 

These systems of banking should be kept separate for the follow- 
ing reasons : 

The first is, and it is brought out most admirabl}' by Prof. Thomp- 
son, deposits for personal loans are always from local funds. I 
think Prof. Thompson made the statement before your committee 
that only 5f per cent of the deposits for personal purposes come 
from out of the State in which the loans are made. And that is 
natural. The loans are only $250 on the average for tenants. It 
is upon personal security, and naturally the funds must come from 
local resources. For this very reason I fear that an effective system 
of personal credit for farmers at some point must have Govern- 
ment aid. 

I am not going to discuss it further than that, because I have not 
settled in my own mind — and our commission have not, although. 
we are going to attempt to submit presently to you a bill in a ten- 
tative form — just what should be done; but it is to be a more diffi- 
cult task to draft an effective bill upon personal credits than it is 
for mortgage credits. It must be recognized that any system for 
personal credits must reach out to those sections of the country 
where there are no local funds; where the lands are in the unde- 
veloped stage; and where there are no stores of accumulated capital ; 
the people are all borrowers: there are not depositors of idle funds; 
and there comes in the field where the Government must decide 



80 RURAL CREDITS. 

this question of what it is willing to do in the matter of loaning 
funds to aid agriculture. When it comes to the question of mortgage 
loans funds naturally flow all over the United States. Prof. Thomp- 
son has told us that the great insurance companies in the eastern 
part of the Dnited States are loaning a large part of their funds in 
the corn belt — a large percentage of it, 31 per cent of their total loans, 
in the State of Iowa. Because of this mobility of loanable funds, 
there is no reason on the face of the earth for Government aid for 
mortgage loans, but the question of personal credits, which is a 
purely local matter, presents a worthy suggestion for national aid. 
I shall not discuss it any further at this moment. 

We have in this bill permitted a limited-amount deposit — only 50 
per cent of its capital. I think there is a good reason for that. In a 
business between the bank and its clients, there will be some funds left 
there — there will be some deposits that remain after the payment of 
the interest. There has been a new relationship created and it would 
be almost a necessity there should be a limited line of depositors. 
It is entirely arbitrary where you fix a limit. I would put it so small 
that the banks could neither compete largely with commercial banks, 
nor be subjected to temptation of going far out into the Avide com- 
mercial field of bank activity. 

There are in Europe what are called mixed banks — they have both 
pure and mixed mortgage banks — and the mixed mortgage banks are 
limited to the issue of $10 of bonds to $1 in capital; while the pure 
mortgage banks can issue from $15 to $20, thus recognizing the fact 
there is a hazard in accepting commercial business and that such 
banks must be closely restricted in the volume of their bonds. 

The next question is a decentralized system of banking. You must 
make a choice between a centralized and decentralized system, and I 
shall discuss that question with you for a moment. 

I will call your attention to the German experience. Germany has 
the decentralized or competitive system of banking, in that mortgage 
loans are made by three or four different agencies. First, they have 
the landschaften association; next are savings banks; next are 
the joint-stock banks; and then come the insurance companies. Those 
are four big factors, all of them organized as separate or independent 
institutions. 

The Landschaften Association have out $850,000,000 on rural loans 
(and I might say here, in passing, that the landschaften association 
is limited to rural loans alone) ; the savings banks have a like 
amount, $850,000,000 on rural loans; the joint-stock banks have 
$154,000,000 on rural loans; and the insurance companies have only 
$12,000,000 on rural loans. 

Now. you will see that where the institutions are competing side 
by side for mortgage business the savings banks in Germany make as 
large a proportion of the rural loans as the landschaften associa- 
tions; that the landschaften association and savings banks have each 
46 per cent of the rural mortgage business while less than 8 per cent 
is made by the joint-stock banks. 

There are 23 landschaften associations. One was founded in 1770. 
There were 17 founded between 1825 and 1896. 

There are 37 joint-stock banks, one of which was founded in 1850, 
and 27 were founded between 1862 and 1896. 

Of this $154,000,000 in rural loans by joint-stock banks, 91 per cent 
of it was made by only 7 banks, 1 Prussian bank and 6 Bavarian 



RURAL CREDITS. 81 

banks. It is not necessary that land-mortgage institutions shall 
make all mortgage loans. It is not even desirable. There will be 
free competition, unless you establish a monopoly by law, or unless 
you grant national loans at such a low rate that private capital will 
not compete. It is entirely possible to have competition between 
private capital and mortgage banks, and the land-mortgage bank will 
act as a regulator of the rates and bring about a generally lower rate 
and more uniform conditions which are, in my mind, desirable results 
to be secured. 

Mr. Platt. How many of those German institutions have amorti- 
zation plans? Do any of them besides the landschaften? 

Mr. Moss. Yes; all mortgage banks demand amortization; savings 
banks do not. 

I invite your particular attention to the fact that the bill limits 
the loans to be made on local real estate. I consider that an abso- 
lutely fundamental and vital feature of it. It is a matter of ex- 
perience that any institution having a right to loan both upon rural 
and urban property places a large majority of its loans upon urban 
property. 

I will call your attention to the figures. Let us take the savings 
banks in Germany. There are 2,844 public savings banks in the 
German Empire, having 7,404 branches. Thev control $4,100,000,000 
of deposits. Of that $4,100,000,000 deposits/20 per cent of it only 
is loaned upon rural real estate. 

The joint-stock banks in Germany have loans upon real estate 
now to the enormous extent of $2,575,000,000; and out of that vast 
total less than 8 per cent, or only $154,000,000. is loaned upon rural 
real estate. 

The landschaften associations are compelled to loan upon rural 
real estate, and of course their entire loans are upon this class of 
security. 

The savings banks do not have the amortization feature and can 
not make loans for a fixed period. They make recallable loans. 
Their rates are higher than the landschaften association's rate, and 
yet with the higher rates and with harsher terms these banks loan 
practically as much money on rural real estate as do the landschaften 
associations, and very much more than the joint-stock banks, for this 
reason — and this suggests one of the fundamental features of this 
bill — the savings banks in Germany are limited by law to making 
ioans on land in the immediate neighborhood where the banks are 
located, and only under certain conditions can they make loans out 
of the restricted area. 

The landschaften associations also make loans in a restricted area, 
each one being confined to a Province in Germany which, in some 
instances, is no larger than counties in some of our States. In so 
doing the cost of the appraisement is very much less than in those 
national loan associations, and there is practically no cost whatever for 
supervision. Thus, due to this fact that the cost of inspection and 
the cost of supervision is so much less where local loans are made 
than in the case of those banks where the loans are not limited to a 
particular locality, all of the small loans practically go to the savings 
banks which seek to loan their funds upon local properties. 

37031—14 6 



82 RURAL CREDITS. 

The joint-stock banks and other national institutions, having the 
right to loan anywhere in Germany and having a right to loan 
both upon urban and rural real estate, if they were to assume to 
carry out their operations all over the Empire, the cost of appraise- 
ment and cost of supervision on small rural loans would destroy 
their margin of profits. The margin for administration is kept 
low by competition, and hence they accept urban and large rural 
loans. 

But, in the beginning there was a feeling of the commission — some 
members of it — that we could establish a national bank, and you will 
recall that Senator Fletcher's bill provided a bank to operate all 
over the United States. Later on it was believed it would be well to 
have as many central banks as we have States, and we worked out 
a bill very carefully, having one central bank in each State and 
to give tliat bank a monopoly of issuing bonds in that State. 

We worked out a tentative bill upon that subject, and I am told a 
bill has been introduced in Congress containing essentially, if not 
identically, the same terms as the draft of the commission bill. I may 
be mistaken, but I know the bill was presented with the statement 
that it was to be introduced, and I am told that a Member has intro- 
duced the bill practically as the commission worked it out. 

But the importance of the figures as you have them from Germany 
is that the banks there loaning on rural real estate are local banks, 
and banks loaning in a particular locality are the ones which are able 
to meet competition and are the most successful. 

Now, turning to France, you will find there practically a monopoly 
created by law. The Credit Foncier started cat with Government 
aid in the foundation capital, and was given an absolute monopoly 
for 20 years. Later on this monopoly was continued by reason of cer- 
tain privileges, such as freedom from decennial registration of mort- 
gages, speedy right of foreclosure, etc. Above all else, the bank was 
given the right to attract deposits by the lottery system — a system of 
prizes. The result is that the Credit Foncier is able and has been able 
to secure the savings of the French Republic in deposits, and that 
has been one of the great sources of its funds for making loans. This 
absorption of deposits was so complete that when France attempted 
to organize a system of personal credit, not being able to attract de- 
posits in local banks, it became necessary to use money advanced by 
the National Government in order to make personal loans to the 
French farmer. The Bank of France has to divide a certain propor- 
tion of its profits, which is turned over to these personal-credit banks 
in France, to be loaned to farmers exclusively ; and that necessity has 
been created in large part in that old and thickly populated country 
of France because this great land bank is given a monopoly and has 
been given the exclusive right, by a system of lottery and prizes, to 
attract the savings of the nation in order to feed and perpetuate this 
monopoly. This result is quite to be expected. 

If you create a monopoly, you must give it a special privilege in 
order to exist. Monopoly never has lived, can not live, and never will 
live in any country unless it is given special privileges. That is the 
price of monopoly. If you are going to create a central bank and 
want to create a monopoly by it, you must give it special privileges 
in order for such bank to be successful. 



KURAL CREDITS. 83 

Your commission has come before you with a purely competitive 
bill. It has been prejDared with the idea of creating competition, not 
only between different institutions, but between different types of 
institutions; but if your committee adopts the monopoly idea, if you 
are to accept the central-bank plan, then you must strike out of this 
bill or any bill that you report either cooperative banks or joint-stock 
banks. Joint-stock banks and cooperative institutions can not exist 
together; they can exist as competitive institutions, but they can not 
be combined together in a monopolistic joint institution. 

Some criticisms have reached me by private correspondence and 
through the press in which this bill has been referred to as a bankers' 
bill — as a measure largely in the interest of bankers. As a matter of 
fact, there can not be a freer banking system, but I will speak later 
on about that feature. 

Xow, coming back to the general features of the bill. It offers you 
a competitive system of banks that can go in operation at once in 
every State of the Union under conditions as they now exist. At 
the same time it is a bill that, whenever certain local laws are changed 
to bring about certain results, then the bill can go into operation in 
those States under more favorable circumstances. So it is a bill, as 
I have said, which goes into operation under present State laws, 
and yet one which constantly offers a premium to the States to en- 
courage a much-needed improvement in many of the present State 
laws on this subject. 

One of the great benefits to come from Federal legislation in aid- 
ing the farmer is in providing an incentive to the States to make 
better laws controlling the terms under which agricultural mortgage 
loans are made and under which land titles are transferred. One 
of the best features of the bill is that it can go in operation to-day in 
every State in the Union, and yet it does offer a perfectly legitimate 
incentive to every State which will improve its land laws; and the 
bill not only offers the several States an incentive, but even suggests 
along what lines this improvement ought to be made, and lodges the 
power on the part of the Nation in a bureau of the Federal Govern- 
ment, by rules and regulations, under conditions which shall be 
uniform and applicable to all banks and to all States alike. 

It is not necessary, I think, to speak particularly about com- 
pulsory amortization, as it was discussed fully on yesterda}^ by Sena- 
tor Fletcher. A point, however, I wish to call your attention to 
particularly is that amortization is really a savings feature and any 
bank having amortization is really a savings bank. The thought of 
the commission was not only to provide safety for the funds, but to 
promote safety to the borrower by denying to him an opportunity 
to go in debt for a long period of time without making an adequate 
provision for its payment. 

I shall venture to give my own definition of amortization. 
Amortization, as the word is used here, while it refers technically to 
payments — of course, upon the principal — really means a series of 
payments that shall be uniform for a certain length of time and at 
the end of the time that the debt itself shall have been exinguished ; 
and so fixed that whatever series of years you may adopt, the bor- 
rower, by paying a uniform rate during that series of years, will 
owe nothing at the close of that time. 



84 RURAL CREDITS. 

One good feature of this bill is that the National Government is 
charged with the duty of providing standard tables of amortization, 
which shall be adopted by all of the banks governed by its provi- 
sions. This would give a uniform rate all over the United States 
for both public and private banks and would most effectively stand- 
ardize the mortgage loan business. And, as I said before and say 
now, if this legislation is enacted and there was not but a single 
bank established under it, this one feature would be of vast benefit 
to the people of the United States. It would absolutely check any 
practice of usury by means of using false tables and give any bank 
the proper rate of interest to charge in order to mature their loans 
within any given time at any given rate. 

Mr. Platt. You would not say that amortization would give the 
borrower a cheaper rate of interest than he could get a loan without 
it, would you ? 

Mr. Moss. No; amortization can have no influence on interest, ex- 
cept as it will influence the rate favorably by reason of strengthening 
the security on which the loan is based. 

Mr. Platt. With equal security? 

Mr. Moss. It gives additional security, and it gives the borrower 
the additional protection of being constantly saving against his 
debt. 

Mr. Platt. My only point in putting that in was the people get 
altogether false ideas of this thing by reading about it in the news- 
papers. They have an idea that some miracle is going to be worked, 
and I think that impression ought to be corrected. 

Mr. Moss. In connection with that idea, Mr. Platt, the basic idea 
of this system is realW devising a credit instrument to secure funds 
to be loaned. Now, the best credit instrument that has yet been de- 
vised is a bond, free from taxation, based upon absolute security, 
with frequent and regular interest payments. It is the credit 
instrument that has fought every kind of a war that has ever been 
waged; it has constructed all of our public improvements, and it 
finances all public undertakings. This bill is really adopting that 
credit instrument, free from taxation, placing it under Government 
supervision, and making in available for individual use on the farm; 
whereas heretofore it has been working exclusively for community 
interest. This bill, therefore, gives the farmer every advantage 
in the way of obtaining credit by the cooperation of 10 persons 
subscribing a minimum capital that the community now has with 
practically unlimited capital. An advantage is going to come to 
him in the compulsory amortization by inducing a savings deposit, 
and as a matter of fact you permit the farmer, by organization, 
with small capital, to take advantage of the most favorable credit 
instrument that the wit of man has yet devised. 

Senator IIollis. Now, Mr. Moss, do you mean that those tables 
should be at a uniform rate for the whole country, or do you mean 
they should be based on different rates of interest? 

Mr. Moss. Oh, different dates of interest, Senator. I mean to say 
that the table would indicate, if you take a note for 25 years at 4 
per cent interest, the proper annual amortization charge which is 
necessary to mature the note, it would show him and every other 
man in the United States under like circumstances just exactly what 
payment will discharge his debt. Another feature in this bill is 



RURAL CREDITS. 85 

there is no sinking fund permitted, and payments made by the 
farmer must be at once turned over to the bondholder. This has 
been done in the interest of absolute safety, especially for the 
bondholder. I think you will agree with me, after our experience 
with the insurance companies with vast sinking funds, that it will 
be vastly better to make these moneys active by turning them over 
immediately to the holder of the bonds to whom they rightly belong, 
giving the banks the right to recall bonds at any time, than to per- 
mit these banks to accumulate a vast hoard of money which musk 
be handled by them as trustees for the ultimate benefit of the bond- 
holder. 

Senator Hollis. I wish you would give the arguments for that, 
Mr. Moss. 

Mr. Moss. The argument is this, Senator, that under this system 
it regulates itself with mathematical certainty. There is no risk to 
be assumed. You may assume as a fact very safely that there will 
always be a larger demand for these loans than possibly can be sup- 
plied. Therefore the volume of the business will be controlled by 
the sale of the bonds. 

If, then, there is an active demand for the bonds, there will be 
no hardship whatever on the bank by reason of the prompt payment 
and retirement of outstanding bonds, because the bank can immedi- 
ately issue new bonds to meet this demand; as a matter of fact, the 
prompt calling of bonds and paying them off at par will have a 
tendency to uphold them in the market. If, as a matter of fact, you 
issue a bond for 35 years or for 30 years and they circulate for that 
entire period, under certain conditions it might be that such bonds 
would fall below par. In fact, if there is a general rise in interest 
rates, it is sure to go below par ; but if there is a general fall in in- 
terest rates it is equally true that the bond will go above par. I think 
we all agree upon that proposition. 

Now, then, if this bank, as a farmer comes in and pays the money, 
even if it can reinvest, unless it invest in land-mortgage loans, it 
would have the same hazard as other commercial investments. There 
could be no possible advantage in permitting a sinking fund to be 
invested in a new mortgage loan, because a new issue of bonds could 
be made to do the same thing. The only possible advantage in a 
sinking fund is the power of compound interest. Therefore it is in 
the interests of safety and does not in any way create a hardship, 
except in the prohibition of compound interest. 

Mr. Hayes. Let me see if I understand. As I read the bill, the 
payment that the mortgagor makes in the mortgage will not apply 
on the bond that is issued at all. His bond runs the full 25 years, if 
it is to run for that period, unless the bank chooses to take it up and 
does take it up and retire it? 

Mr. Moss. As it either chooses or is compelled to. 

Mr. Hayes. How can it be compelled to? 

Mr. Moss. It must keep this volume 

Mr. Hayes (interposing). Yes; I can see it might under certain 
circumstances. 

Mr. Moss. Of course it would take this money and at once rein- 
vest it in bonds, and it is not in any sense of the word a sinking 
fund. 



86 RURAL CREDITS. 

Mr. Hayes. Not at all; but you made a statement here that led 
us to believe that you had some other idea. 

Mr. Moss. Oh, no. 

Mr. Seldomkedge. If it could use its surplus. But suppose the 
bank finds itself without any demand from the borrowers; it must 
invest its funds in some form in order to keep up its interest. 

Mr. Moss. It always has the right to recall bonds and pay them 
off at par, and that always makes a satisfactory investment for what- 
ever funds it may have. Now, the bill permits the bank to loan 
and reloan its capital, deposits, and surplus under certain conditions. 
If it is permitted to reloan its capital, there can be no question of 
surplus funds tied up in the bank, because if they are not invested 
under these provisions the bank can call in and cancel the bonds at 
par, and the interest on the mortgages thereby released will accrue 
to the bank. 

Mr. Platt. The section you refer to is on page 1G, is it not, 
clause 4? 

Mr. Moss. Yes — 

that as t lie amortization payments are credited upon the first mortgage or 
first deed of trust, farm loans so deposited as security, the national land-bank 
bonds issued by the bank and secured thereby, shall be called and paid or 
purchased in the open market and retired, to the extent of the credits made 
upon said first mortgage or deed of trust farm loans held as security for the 
same, under rules and regulations made by the commissioner of farm-land 
banks. 

Under that provision we have made it mandatory upon the bank 
to retire its bonds in proportion as the mortgages are paid off. 

Mr. Hayes. You do not allow them to use that money that comes 
in to make new bonds ? 

Mr. Moss. No, sir; we have no provision in the bill for a sinking 
fund, absolutely none. 

Senator Hollis. Mr. Moss, you do not feel hurried in giving your 
testimony, do you ? We have plenty of time, and you go so fast that 
I find I can not follow you. 

Mr. Moss. Thank you, Senator, for that courtesy. I was afraid 
I might tire the committee. 

Senator Hollis. I wish you would not; I wish you would take 
your time and take it easy, because we are not going to find many 
witnesses who can give us the information you can. 

Mr. Moss. I was afraid I would tire the committee, as there are 
many things I wanted to speak about. I thank you for the suggestion. 

The idea that the commission had in this matter was to make the 
bondholder absolutely safe, and one of the great elements of security 
about the bond is that as the farmer pays in his money it immediately 
reaches the bondholder, and thus there is no risk between the time 
the money is paid in by the borrower and the redemption of the bond. 
If the holder of the canceled bond is satisfied with the investment, the 
bank will always have another bond of equal value to offer to him, 
and therefore there is no hardship upon the bondholder and no hard- 
ship upon the bank, and it will make the circulation of securities 
more active. 

Mr. Hayes. Let me get your idea a little further. You do not 
mean to say if I owed one* of these banks $3,000 and I came in to 
pay it that the bond that was issued on my security — that identical 



RURAL CREDITS. 87 

bond — must be purchased, or they must go out and purchase the sum 
of $3,000 worth of bonds? 

Mr. Moss. The bank will call in $3,000 worth of their bonds, with- 
out distinction as to any particular bonds. 

Mr. Brown. Let me understand this. Are these bonds redeemable 
at the option of the bank ? 

Mr. Moss. Yes; they necessarily would have to be. In Europe I 
think it is the common custom to draw these bonds by lottery, where 
they are redeemed before they are due. 

Mr. Platt. I was going to ask you about that. You do not provide 
for any method. 

Mr. Moss. No, sir. It is left to the bank. I am going to speak in 
a moment of the reason for it. 

Senator Hollis. You would leave that to the board or commission 
to prescribe regulations, based upon their experience? 

Mr. Moss. Yes, sir. One of the most important subjects connected 
with land-mortgage bonds is to provide a prompt market for them. 
For instance, a person buys a bond for five years and he draws his 
interest, and then desires to get his money back; he must be able to 
go out and sell again, and at the same time to sell for as much as 
he gave for it. That is the crucial test of this proposition. Unless 
a bank that issues the bond is prepared to buy it on demand of the 
owner, there may be times when land bonds might become a drug 
upon the market. My own idea is to make the circulation of the bond 
pretty active, so that they are taken out of the first holder's hands 
and retired at the bank's counter pretty often. In that way they will 
circulate at par and be held up to that price with less difficulty than 
if issued for a long period of time and not paid off until maturity. 

Mr. Hayes. Let me suggest, I think the provision in there leaving 
the matter in the discretion of the directors what bond shall be paid 
off is desirable. Here is a man who wants his money and he can 
notify the directors what bond he holds and that he would like to 
have his money, and they can have that in view and in that way ac- 
commodate him, and also in that way keep the price of the bond up. 

Mr. Moss. I am glad that you approve that provision. In the be- 
ginning we thought there ought to be no restrictions put in this bill 
unless it was absolutely necessary to secure safety and that many 
regulations necessary to enforce the provisions of this bill might be 
left to the discretion of the division of land banks created by the bill. 

Now, the next provision I desire to call especial attention to is the 
payment of the mortgage in money or in bonds. My attention was 
called to that provision by a farm publication, which stated that it 
was the joker in this bill; that if you examined any important bill 
you would always find a joker and there was the joker in this bill; 
that the farmer was enticed to borrow his money on the provision that 
he could repay it at his option, and then when the time came and he 
attempted to exercise his option, the bank might say to him, bring 
in the bonds, and as the bonds might not be on the market, he could 
not get hold of them to pay it off and he could not discharge his 
debt. Of course, the committee understands precisely the meaning 
of the provision. A man, after five years — and it was fixed at five 
years because it was believed that the bank ought to have a reason- 
able return in the way of administrative charges or profits for the 



88 RURAL CREDITS. 

trouble in making the loan and therefore the loan ought not to be 
paid off under five years — that after five years, at any interest 
period, the borrower could have the right to repay his loan, either in 
money or in bonds. 

Now. the mere matter of fact of giving the option of paying in 
bonds is n<>t to deprive him of the privilege of paying in money, but 
if the bonds fall below par — that is the proposition — under this bill 
the debtor can purchase the bonds and the moment he presents them at 
the bank's counter the}'' cancel the mortgage. If the bonds are below 
par this option gives the borrow the advantage of discharging his 
debt upon the lowest possible terms and the profit goes to the bor- 
rower instead of to the bank. Either the bank or the farmer must 
purchase the bonds under the terms of the bill. 

Senator Hollis. And it has the tendency to keep the bonds up in 
case they commence to go below par? 

Mr. Moss. Undoubtedly. Now, how any intelligent writer can 
refer to that as a joker I do not see. 

Mr. Hayes. You do not think any intelligent writer would, do 
you? 

Mr. Moss. I doubt it, but this writer did it. 

Mr. Platt. Is that done in any European banks? 

Mr. Moss. Yes; it is nearly uniformly done, and it is one of the 
very elements in the whole system. 

There is another reason, too, for making the redemption after 
five years, and that is that it absolutely protects the borrower against 
a genera] fall in interest rates. Now, in this country where interest 
rates are higher than in the old country, it is said we can reasonably 
look forward to the fact that as the country grows in wealth there 
will be a general fall in interest rates. 

Senator Hollis. Is not that questionable, now? It is the old 
theory, but I think the idea now is that that we will probably never 
have such low interest rates as European countries. I would like 
to get your individual judgment about that, because you undoubtedly 
have studied it. 

Mr. Moss. My own individual judgment is that of a certainty 
interest rates will fall in the undeveloped sections of the United 
States. 

Mr. Hayes. That is true. 

Mr. Moss. Now, without this optional provision, no prudent man 
is going to tie himself up with a mortgage running for 25 or 30 
years in any section of the United States. No prudent man would 
do it. But, if he gives a mortgage for that length of time, with 
the privilege of paying it off after five years, he is absolutely pro- 
tected against any fall in the interest rate, and then he has accu- 
mulated his amortization payments for five years as a saving. He 
makes amortization paj 7 ments upon the principal, and a man who 
takes advantage of the proposition knows he is getting his loan at 
the best terms that money can be had. and after five years he can 
discharge all or any part of his debt. That. T submit, is a very 
important feature of the bill. 

Air. Haves. You do not contemplate — I do not recall whether the 
bill does or not — you do not contemplate loans for less than five 
years? 



SURAL CREDITS. 89 

Mr. Moss. Yes, sir. This bank is given the privilege of making 
loans for any shorter period of time, but is prohibited from issuing 
bonds on loans for less than five years. I would like to take up 
the reason for that. The main purpose of this bill is to encourage 
the savings feature in connection with farm loans. I am speaking 
of the amortization feature now as a savings feature. 

Second, there is absolutely no disadvantage in making a loan 
for longer than five years, if you have the option to pay it off after 
five years. The only question is that during the five years the bor- 
rower makes heavier payments on account of the amortization fea- 
ture. Therefore it works no hardship, at least, not to give the right 
to issue bonds against five-year loans. The bank has the right to 
make five-year loans, but it does not have the right to issue bonds 
against it. National banks loan money for five years without issu- 
ing bonds. It would at once be a discrimination to give this bank 
the right to make five-year loans and issue bonds against them, 
whereas the national bank right across the street is permitted to 
make similar loans, but is not given the right to do that. Where 
competition is open no favors should be granted. We seek to make 
competition in the five-year loans. This bank has the right to loan 
its capital and deposits on five years' time, just as other national 
banks. This, I believe, is eminently fair; but I think it would be 
unfair to give them the right to issue bonds against the five-year 
loans, it would also militate against the main purpose of the bill 
which is to create a savings feature in connection with farm loans. 

Mr. Woods. Mr. Moss, suppose farmer A secured a loan for six 
years, would he be barred from paying any portion of that loan 
until the end of five years? 

Mr. Moss. I think that is true, except his amortization payments. 

Mr. Coulter. Anything over five years would call for amorti- 
zations. 

Mr. Moss. Yes; that is the provisions of the bill. 

Mr. Woods. The amortization feature does not enter until after 
five years. 

Mr. Coulter. Oh, yes, sir; they start in paying right off. 

Mr. Woods. At the end of the first year? 

Mr. Coulter. Yes; right off. 

Mr. Woods. What becomes of that money after the first five years! 

Mr. Coulter. It is used to buy the bonds. 

Senator Hollis. That is, if the loan is over five years, the amortiza- 
tion plan must apply to it ; and if he does not want that feature, he 
could agree to pay within five years, or less. 

Mr. Hayes. For a six-year loan or less he would not pay an equal 
amount, but he would pay approximately one-sixteenth of the prin- 
cipal at every interest period. Of course it would be a little less 
than that at the beginning and more at the end. 

Mr. Platt. Of course, when bonds had issued on loans of more 
than five years which have the amortization feature, no doubt some 
of them would come in and be paid off within the five-year period. 

Mr. Moss. The bond itself can be called in at any time the bank 
chooses; and therefore while the borrower would be repaying the 
obligation to the bank, the bank can call in its corresponding obli- 
gation at any time after it is issued, under the terms of this bill. 



90 RURAL CREDITS. 

Senator Hollis's observation is correct. The borrower, if he desires 
to escape the amortization feature, must choose a five-year or under 
loan. He can then make his contract with the bank regarding par- 
tial payments with the same freedom he would enjoy in dealing with 
any other bank or loan agency. 

Another feature in this bill is the special reserve for interest guar- 
anty. I think the committee will at once concede that there is no 
reason for holding a special reserve against the principal, because 
under these provisions the amortization is at once credited on the 
bond, and at the end of the time the mortgage is paid off and the 
bonds will be retired. Therefore, so far as the principal of the bond 
is concerned, there is no necessity for a special guaranty reserve. 

But the question is met in connection with the payment of the 
interest on the bond. It is reasonable to presume that there will be 
a number of defaults among the borrowers in paying the interest 
(to the bank) on the particular day on which it falls due. Or, in 
instance of a foreclosure, there would naturally be a period in which 
there would be no interest payments. I think you will find on care- 
ful study that, although it is not required in European banks, prac- 
tically all of the prudent banks do ordinarily carry a special re- 
serve of 5 per cent for this purpose, recognizing the fact that the 
bondholder ought to have his interest promptly when it falls due, 
as without that the bond itself can not be considered a first-class in- 
vestment. Hence the commission wrote into the bill a provision that 
out of the net profits of the bank, before any dividends can be de- 
clared, there shall be set aside a special reserve of 5 per cent, based 
upon its annual interest charge, and I think you will agree with me 
that this will be very prudent. I have no doubt that every bank 
would carry such a reserve, anyhow, so far as that is concerned; if 
it was well managed it certainly would do so. But that provision 
was written in here in order to make sure that the bondholders would 
be protected. 

Senator Holeis. Yes ; I think it would give the system a black eye 
if the bondholders did not get their interest promptly when due. 
They get a low rate of interest, and they ought to be sure of getting 
it when due, and it ought not to be made possible for any cry to be 
raised in any part of the country that the bonds were not a good 
security. 

Mr. Moss. Yes, sir. These banks being given the dignity — and I 
think the prestige of the national name and national supervision — it 
ought to be made absolutely sure that there will be no default in the 
payment of principal or interest, and that it is necessary to have a 
prudent reserve, because a bank might be 

Mr. Hayes (interposing). Short of funds? 

Mr. Moss. Yes; short of funds for the moment to pay the interest 
when due. 

Mr. Seldomridge. Where is that reserve provision contained in the 
bill? 

Mr. Moss. It comes in under the heading of " dividends." 

Mr. Hayes. It is on page 35. line 10. 

Mr. Moss. Yes ; the bill reads : 

Provided further. That a special reserve fund shall be maintained by each 
national farm-land bank, which special reserve fund shall be created out of 
the net earnings of the bank and shall at all times be equal to 5 per cent of 



RURAL CREDITS. 91 

the total annual interest charge on the land-bank bonds which are outstanding 
against such banks at the close of the last fiscal year. Such special reserve 
fund shall not be disbursed for any other purpose except to meet arrears in 
interest payment on land-bank bonds issued by said bank. 

Mr. Seldomridge. While we are on that subject let me ask you an- 
other question. Is there any provision in this bill regarding the fail- 
ure of a mortgage to meet the interest payment as to what should 
be done? 

Mr. Moss. No, sir. That is a question of contract between the bank 
and its borrower and would depend upon the terms of the contract; 
it would also be controlled by the laws of the State. 

Mr. Seldomridge. Well, suppose a man defaults in the payment 
of interest? 

Mr. Moss. The special reserve fund will meet that contingency. 
The next feature that I will call attention to is the investment of the 
capital. This bill is drawn upon the theory that every holder of a 
bond will have three sources of protection. The first and primary 
source, of course, is the value of the land that is mortgaged ; second, 
the capital of the bank; and third, the guaranty — the liability that 
the stockholders assume. 

Mr. Hayes. Would there not also be after awhile a surplus? 

Mr. Moss. Yes; but the surplus would be counted as capital, and 
therefore it would not count as a guaranty. 

Mr. Hayes. Yes. 

Mr. Moss. Now, we have prohibited the permanent investment of 
the capital in the main business of the bank; that is, in the long-time 
loans upon which they are issuing bonds. I think, if you permit that, 
the capital would not be the most certain protection to the bond 
holder. We have, however, provided certain profitable forms of 
investment for the capital. It can be invested in five-year loans ; 
it can be invested temporarily in long-time loans, which must be 
replaced later by the proceeds of land bank when they are issued 
and sold ; and there are several other forms of investment. But the 
capital of the bank itself is used on the outside and in separate lines 
of venture from the main purpose, which is the issue of long-time 
loans. That provision was put in the bill in order to make the capi- 
tal an absolute protection to the bondholder and at the same time 
giving the bank an ample opportunity to invest it so as to make a 
reasonable interest upon its capital. 

There is one feature, Mr. Chairman, that I overlooked, and if 
you will pardon me I will now go back to it. It is in regard to the 
liability of the stockholders. We have made this an American 
banking bill and have provided that every stockholder in the bank 
shall assume a double liability, the same as is commonly assumed by 
persons holding shares in other national banking institutions. But 
in the case of a cooperative bank there is a provision made for a 
larger liability, if two-thirds of the stockholders care to assume it. 

There was a very wealthy man — a good business man — from New 
York who appeared before the commission and suggested that we 
ought to make a banking system which would have a small cash 
capital and a very large credit capital ; that is, to permit persons of 
wealth and financial responsibility to underwrite a series of bonds 
similar, I was told, as the Lloyds do, for instance, in marine 
insurance; in other words, putting up a certain amount of cash capi- 



92 RURAL CREDITS. 

tal and then assuming a large credit liability, which credit liability 
would guarantee to the outstanding bond. This credit liability would 
not be called except on failure of the mortgagor to pay his obliga- 
tions upon which the bonds or liability of the underwriters was 
based. The commission did not approve that idea. And } r et the 
landschaften associations permit an unlimited liability to be as- 
sumed by the shareholders, if they care to do so. 

Mr. Platt. Is it not in principle an unlimited liability which you 
suggest ? 

.Mr. Moss. Yes, sir. In principle I do not believe in unlimited 
liability, and I do not think that the farmers of the country will 
take kindly to it — at least without years of operation of the system. 
The whole system of credit capital as a guaranty of obligation is to 
be one of growth and development. I expect Dr. Coulter to speak 
particularly of the cooperative feature of the bill, and I am not 
going to speak at length upon it, because Dr. Coulter has studied 
that subject as much as or more than any other man in the United 
States; and this cooperative feature in the bill is particularly his 
feature, and I feel that Dr. Coulter will discuss that feature much 
more entertainingly and much better than I can. 

But under this provision, if two-thirds of the stockholders in a 
cooperative bank desire to do so, they can assume a liability of 
three or four or five times the value of their shares, and even an 
unlimited liability, and thus, if they cared to do so, put a larger 
credit capital behind the bond, with the object of giving them a 
greater security and sale. This puts the question up to the business 
judgment of the individuals. The cooperative land bank under the 
provisions of this bill may, with the consent of two-thirds of its 
stockholders, organize a new landschaften association after the Ger- 
man model. 

Now, that is the widest variation that comes in the bill; you can 
assume, in a cooperative bank, just precisely the same liability as in 
a joint-stock bank, or you can extend the liability as far as you like, 
giving an opportunity for growth of cooperative ideas in banking. 

At the beginning. I do not think I violate any confidence in say- 
ing that I was opposed to the writing of the cooperative idea in this 
bill. And yet, after a careful study of the matter and after coming 
into contact with what I believe to be the very best thought at the 
present lime. I wish to say that it would be a very grave mistake to 
strike it out of the bill ; and I am going to make the prediction that 
the great growth in the future among farmers toward better business 
methods is going to be along cooperative lines. 

Mr. Hayes. In some places I think that is true. 

Mr. Moss. And that is one of the reasons that you can not put this 
system or any system of personal credit into operation in a day. 
There is not any thought of trying to do that. "We ought to build 
for the future; and just as farmers come together in a cooperative 
way on business lines and find that they operate on cooperative lines 
very much better than individually, and with absolute safety, so Avill 
their cooperation and their business ability grow along those lines. 
And it was thought a good plan to give them an opportunity to do 
this in this bill. And there are some places where, perhaps, this 
cooperative system can go into immediate effect, because we have in 
a great many centers — and you would be surprised, gentlemen, if 



RURAL CREDITS. 93 

Dr. Coulter should take the time to show you in how many sections 
of the United States there is cooperation now among farmers, and 
how actively they are at work; of course, Mr. Hayes, you are familiar 
with cooperative conditions in California, which is a very apt illus- 
tration — and there are a great many other centers where cooperation 
in rural industry in already practiced. The more you study the 
matter the more you will be surprised at the extent to which the 
cooperative idea has grown among the farmers of the country. 

Mr. Hayes. Nearly all of our fruit in California is marketed by 
means of cooperation. 

Mr. Moss. Yes. Now, I am getting down to a subject on which 
there will be some controversy, and that is permitting cooperative 
banks to do a banking business for and with their own stockholders. 
You will find it at the bottom of page 17 of the bill H. K. 12585. 
I will read that provision; but before I read it I will say that it can 
be stricken out of the bill and still leave the bill as a land-mortgage 
bank measure intact. The provision reads as follows : 

Provided, hotcever, That farm-laud banks, cooperative, may, for and with 
their stockholders, also do and transact the business now possessed and exercised 
by national banks under the laws of the United States, under such rules and 
regulations as may be prescribed by the commissioner of farm-land banks. 

This provision is already enacted into law in the Indiana State 
building and loan association act, the last law that was passed on that 
subject in Indiana, and which is said to be the most forward and 
progressive act in the United States on this subject. 

If, as a matter of fact, this committee reports out a bill on per- 
sonal credit loans, then I can see no reason why this provision should 
not be stricken out of the bill. It does not permit the banks to do 
anything more than a banking business with their own membership. 
It would permit them to take deposits from any stockholder in the 
bank. It would permit them to make loans for personal purposes 
to their own members. That is all it would permit; so that it would 
give an opportunity for these cooperative land banks, so far as their 
own bank membership is concerned, to do a full banking business 
and retain the profits of their own banking in their own hands. 

Mr. Hayes. Do you not think that is dangerous? Take the trade 
of a small bank, where the men at the head of it are not skilled in 
commercial banking. 

Mr. Moss. I will give you my reasons why, as a member of the 
commission, I favored putting this provision in. 

At the present time there are 9,000 banks in the United States with 
a capital below $25,000 each. These banks are located very largely 
in farming sections of the United States. For instance, in Connec- 
ticut, I do not think there is a bank chartered which has a capital 
less than $25,000. I think in the great State of New York there are 
but three banks appearing in the bank directory which have a capi- 
tal below $25,000. Yet, in the State of Missouri, you will find that 
there are 850 of such banks. If you will take that group of States 
there in the Middle West, which is the best group of farming States 
in the Union — Oklahoma, Iow T a, Missouri, Kansas, North and South 
Dakota — those six States 

Mr. Hayes (interposing). And Nebraska? 

Mr. Moss. And Nebraska and Minnesota, you will find that in that 
group of States there are 4,000 banks, at least, with a capital so small 



94 RURAL CREDITS. 

they can not enter the Federal reserve system. That means that 
these banks can have no direct advantage of the rediscount feature 
of that Federal reserve system. 

And it seemed to me it might very well be an advantage in many 
rural sections to give these cooperative banks the right to do a bank- 
ing business among their own members. And yet I admit that the 
question is well open to debate. The system in the Indiana law has 
not been tested. It has gone into effect but has not yet been tested 
sufficiently by actual experience. 

If that provision were stricken out of the bill by the committee 
I should not mourn very much, although it seemed to me that it 
would be a good provision in the case of the cooperative bank. 

Mr. Hayes. Mr. Moss, you agree with me, do you not, that if there 
was a bill providing for cooperative banks to make personal loans 
it would be better to confine this to farm-lands loans ? 

Mr. Moss. I agree with that perfectly. At the moment this was 
written into the bill the commission was of the opinion that they 
would not attempt to work further upon the matter of personal credit 
at this time on account of the difficulties involved. I wish to say 
that the more I study the question of personal credit the more I am 
impressed with the difficulty in the way of it at this time; and I 
believe that personal credit among farmers is something that will 
have to be the subject of growth. It is a question that in nearly 
every other country sprang up after the land-mortgage banks had 
been established. The land-mortgage banks appeared to be a fore- 
runner of the personal-credit loans. 

And along that line, and while we are discussing that feature, I 
do not think I violate any confidence in saying that Dr. Coulter has 
a great many doubts as to being able to work out, under present con- 
ditions, a system of personal credit ; and he is a very competent man 
to pass judgment on this question. And yet that provision was put 
in there by the commission. And I agree at once with you, Mr. 
Hayes, that if the committee is going to consider the question of 
personal credit this question of doing business for their own stock- 
holders ought to be stricken out of the bill. 

Mr. Platt. Would you say, Mr. Moss, that that was a matter that 
might better be left to the different States ? 

Mr. Moss. What matter? 

Mr. Platt. The matter of the personal-credit associations. 

Mr. Moss. Well, I would prefer at the present time not to express 
an opinion on that point. I will say this, that this whole system of 
land-mortgage banks can very well be chartered by the States. 
There is no reason why land-mortgage banks should not be splendidly 
chartered under State legislation. 

Mr. Hayes. Is there not some reason to suppose that they will 
not be? 

Mr. Moss. Yes; and that is the only reason for the Federal Gov- 
ernment taking this action. Now, as a matter of fact, all students 
of our Government will agree that there are very many things that 
the States can do if they care to; and if the States fully exercised 
their sovereign powers, there would be very much less for the Na- 
tional Government to do. And at the beginning of this work I was 
very much of the opinion that the subject ought to go back to the 



RURAL CREDITS. 95 

individual States; and yet to-day that would simply throw away, as 
Mr. Hayes has suggested, in a great many States, all hope of carry- 
ing out the proposition and of securing to the farmers located in 
such States the advantages of rural credit. 

Senator Hollis. Now, Mr. Moss, you feel very strongly, do you 
not, that it would not be wise at this time to undertake to pass a per- 
sonal credit bill? You would confine it to the land-mortgage bank, 
would you not? The section you have referred to seems to look a 
little in that direction. 

Mr. Moss. If this legislation were to be enacted just as it is 
drafted, with no additional legislation, I should feel that the situa- 
tion had been very well met at this time. 

Now, on the question of taxation, I desire to speak at some length 
upon that subject. And first I feel myself compelled to criticize the 
bill a little on that point. As Dr. Coulter is going to follow me, I 
will not have very much more to say upon this bill to-day. 

Dr. Coulter. I do not know that I have anything in particular to 
say at all. I am merely an onlooker here. 

Mr. Moss. But I desire to discuss the question of taxation, Federal 
agents, and a few other propositions contained in the bill. I will 
leave it to the committee as to just how much time I shall occupy. 

Mr. Hayes. So far as I am concerned, I want to hear everything 
that Mr. Moss has to say. 

Senator Hollis. Yes ; I also want to hear everything he has to say, 
and in the greatest detail, too. 

Mr. Bulkley. By all means, Mr. Moss, take all the time you need 
to present this matter. 

Mr. Moss. Thank you, gentlemen, for your courtesy and patience. 
So far as the question of taxation is concerned — you will find that 
on page 20 — I do not find myself in complete harmony with all the 
provisions of section 18. I should oppose exempting the income of 
the banks from taxation. I believe in an income tax, and I think 
it would certainly be a very dangerous precedent, after having just 
enacted an income-tax law, for Congress to create a corporation and 
exempt it from the income tax. I was opposed to that in the commis- 
sion, and reserved the right,. I remember, of criticizing that feature 
of the bill. And I hope when the committee considers the proposi- 
tion that they will be willing to strike out of the bill the provision 
exempting the net income of the bank. I can conceive of no possible 
reason why you should create a corporation and give it valuable 
franchises and very favorable opportunities for doing business and 
then, when you are taxing every citizen of the United States and 
every other corporation on their respective incomes of a certain 
volume, exempt this corporation from like taxation. It would be a 
bad precedent to begin with. Other corporations will then ask to 
have their income exempted; and it seems to me that the provision 
for exempting the income of the bank from taxation ought to be 
stricken from the bill. 

But while I feel that the net income of the bank ought to be taxed 
under the income-tax law, you understand that I am just as strongly 
in favor of exempting the bonds and the mortgages securing them 
from taxation. I think it will be admitted by every student of the 



96 RURAL CREDITS. 

subject that a tax upon a debt simply adds to the interest rate which 
the debtor pays. 

There is a curious prejudice in this country and a feeling that an 
exemption of an instrument of credit from taxation is an exemption 
in favor of the man who holds the instrument: and there is no doubt 
that this provision of the bill will be criticized by some ignorantly 
and by others malevolently along that line — that you are exempting 
the bondholders from taxation. And yet there is no student of the 
subject whose opinion is of value that will not admit the fact that 
taxing a mortgage or any other debt adds to the interest rate. But 
under the system provided in this bill there are created or pro- 
vided two credit instruments to cover one transation. If both these 
credit instruments are taxed there is such a load of taxation that 
the system itself falls to the ground. 

Mr. Hayes. Is it not also true that in most of the States there is 
a double system of taxation now? The mortgage is taxed and the 
land is taxed besides at its assessed value. 

Mr. Moss. Yes, sir; that is true. Now, dealing with real estate, 
which is the basis of these credit instruments, it is one thing that 
can not escape from taxation under our present system of State 
taxation. 

Mr. Hayes. Yes. 

Mr. Moss. All the property involved in these transactions will be 
subject to certain taxation ; and by leaving these bonds and mort- 
gages exempt from taxation you simply make it possible for the 
individual in an organized capacity to borrow money for individual 
purposes on precisely the same terms that the community now bor- 
rows upon. In Indiana we are wonderfully proud of our good-roads 
system. 

I remember that the editor of the Indiana Farmer, Mr. Kings- 
bury, did me the honor once of coming down and staying overnight 
with me on my farm. We had at that time wonderfully villainous 
roads; and in driving from the station to my house he commented 
on the bad roads. I said, " We could build better roads if we wanted 
to, but we do not care about them." 

And he said, "Well, the fox does not care for the grapes that 
hang too high." 

But under the system of issuing bonds which are tax free we have 
built the most magnificent system of roads of any State in the Union, 
spending at least $75,000,000 for them; and it would not have been 
possible to build these roads if bonds had not been issued and ex- 
empted from taxation. 

I was in the State senate at the time that exemption was made, 
and I voted for it. At the same time I tried to get the mortgages 
exempted; and yet, such was the prejudice at the time against such 
a measure that it was impossible to get them exempted, although we 
finally did get a partial exemption. I think Senator Hollis also 
stated that in New Hampshire mortgages are exempt at 5 per cent 
interest or less? 

Senator Hollis. Yes; if the mortgages are on New Hampshire 
land and bear 5 per cent interest per annum or less, they are exempt 
from taxation: and that system has worked admirably. 



EURAL CREDITS. 97 

Mr. Moss. Yes. In Mississippi a mortgage is exempt from taxa- 
tion if it bears per cent interest or less. 

Now, in this particular matter, bearing in mind that the mortgage 
is one credit instrument and the land bond is another credit instru- 
ment covering the same transaction, unless you exempt both from 
taxation you will have double the burden of taxation on the debt. 

Mr. Hayes. And the farmer will have to pay it? 

Mr. Moss. Yes ; the borrower will have to pay it. 

Mr. Platt. It would be a triple taxation, I should think, at least 
in some States. 

Mr. Moss. That is entirely true. So that the system rises and falls 
with this one paragraph of the bill. But there is no necessity what- 
ever to extend that exemption from taxation to the income the bank 
may have. So the point I want to make clear is, that I am criticizing 
the exemption of the income of the bank and at the same time mak- 
ing as strong an argument as I possbily can in favor of the exemption 
of the land mortgage and the land bond. And unless the committee 
sees fit to extend that exemption so far, you had just as well throw 
the bill in the wastebasket. 

Mr. Platt. I do not think there will be any doubt as to our attitude 
on that question. 

Mr. Hayes. How about the capital stock? Does not the same rea 
soning apply to that? 

Mr. Moss. Well, as to that matter, there was no one feature of the 
bill to which so much thought was given as to the question of the 
exemption from taxation. "We first worked this out upon the princi- 
ple that whenever the State exempted from taxation the mortgage, 
then the National Government should exempt from taxation the bond. 
And our thought ran around this cooperative action on the part of 
the State and the Nation, until finally the legal minds on the commit- 
tee decided that this was a better system; and this language was 
copied from the Federal reserve act — but I now recall that it is not 
the ordinary Federal reserve bank that is exempted ; it is the regional 
reserve bank that is exempted from taxation upon capital stock and 
surplus. 

Senator Hollis. Mr. Moss, I wish you would please tell me this: 
"What is the rule in regard to taxation on the capital of the national 
banks themselves ? Perhaps you know, Mr. Hayes ? 

Mr. Hayes. They are taxed. That is what I say, that the same 
principle should be applied to taxation of the capital and surplus as 
to taxation of income. 

Senator Hollis. In our State they are not taxed on capital and 
surplus. 

Mr. Platt. Is it clearly settled that the United States Govern- 
ment can exempt the stock of a corporation from local taxation in a 
State? 

Mr. Hayes. I would like to get a little more definitely, if I can, 
Mr. Moss, your view as to the exemption of capital and surplus from 
taxation, if there is any reason for that. 

Mr. Moss. I say the language in this bill follows that in the bank- 
ing and currency bill regarding the regional banks. Now, my own 
thought about it is this : It is going to be a rather difficult matter to 

37031—14 7 



98 RURAL CREDITS. 

organize these banks throughout the United States within any short 
time. It would be a favor to that extent — and that is the only extent 
it would be favored — if it were exempted from taxation on capital 
and surplus. 

Now, considering that we are undertaking a great work to aid agri- 
culture, and that it is a national industry and one upon which all 
other industry is based, it seems to me that we might overlook the 
favoritism and extend that favor to these banks ; if you do not do it 
upon that ground, there is absolutely no other ground upon which 
you can do it. 

And to this extent, and to this extent only, would it be a favor 
extended by the Government to these banks, and to this extent it 
would be an indirect subsidy to the system. 

Senator Hollis. But why, on principle, is it not just as proper to 
do that as it is to exempt the regional banks — on principle, not expe- 
diency ? I think it is. 

Mr. Moss. Yes. That provision in the bill was taken from the 
regional-bank provision, and the exact language contained in that 
act was written here to extend the same favor to those banks which 
is shown to the regional banks, without creating any precedent. 

Senator Hollis. You see we did not need to encourage the incor- 
poration of national banks, because we already have 7,500 of them; 
but here we are undertaking to go into a new field and encourage the 
establishment of banks that are sorely needed, and therefore I think 
we should have this exemption. Now, I am not sure that we have 
the power to do that ; but I will find out about that. 

Mr. Moss. Yes; the commission thought it was commendable to 
offer every possible advantage that could be offered to these land- 
mortgage banks with perfect safety, in order to encourage them to 
organize; and, recognizing the fact that it was not creating a new 
precedent, as the regional reserve banks had the same exemption, 
we copied the language of the banking act exempting the regional- 
reserve banks, and gave these banks the same exemption in the way of 
taxation which the regional banks are given by that act. 

Mr. Platt. I think it is everywhere recognized that national-bank 
stock should not be taxed at a local personal property rate. I do not 
know that that is true in all the States ; but most of the States have a 
tax on national-bank stock that is much lower than the local State 
tax on personal property. 

Mr. Seldomridge. Mr. Chairman, I move that the committee take 
a recess until to-morrow morning. 

Mr. BiiLKLEY. Well, I want to do exactly what the committee de- 
sires; but we have a pretty good attendance here to-day, and I think 
it would be a good idea for us to continue until about 20 minutes of 
1, if that is agreeable to the committee. 

Mr. Seldomridge. Well, we want to allow Mr. Moss to finish, and 
we then want an opportunity to ask him questions. 

Mr. Moss. If the committee desires to adjourn at this time, that 
will be very agreeable to me. Dr. Coulter is to follow me to-morrow. 

Mr. Plait. Personally. I think all of this personal credit ought to 
be exempted from taxation. 

Mr. P>rLKLF.v. Those letters to which you have referred, Mr. Moss, 
will be printed with the record of the hearing. 



RURAL CREDITS. 99 

Mr. Moss. Yes, sir. I will put them in. without any exception; 
those that are favorable and those that are not favorable to the bill. 
(The papers referred to are as follows:) 

[Editorial from the American Agriculturist, Feb. 7, 1914, vol. 93, No. 6, p. 176.] 

Farm-Land Mortgage Banks — Fletcher-Moss Bill. 

let congress act promptly. 

The administration's bill for a national system of farm-land mortgage banks 
has been introduced. Only harm can arise from delay. Farmers are ready and 
eager to avail themselves of the new system. The commission has done well in 
framing this measure. If its plan for local savings and short-time loans is as 
good, that body will be entitled to the fullest praise. 



[Editorial from the National Stockman and Farmer, Feb. 7, 1914, v. 37, No. 45, p. 1163.] 
Farmers' Banks : An Opportunity for Farmers to Finance Themselves. 

the rural credit plan. 

The administration's plans for a rural credit system appeared last week. 
Two kinds of farmers' banks are provided— cooperative and profit-making. 
[Abstract of bill given.] Just how a bank can accumulate a surplus and yet 
reward its stockholders under one clause of the bill the editor can not see. The 
whole plan is simply an opportunity for farmers to organize banks and provide 
credit for themselves, which is all it should be. 



[Editorial from the Farmers' Review, Feb. 7, 1914, v. 46, No. 6, p. 115.] 
Land Banks : Legislation. 

credit bills. 

Bills for the extension of rural credits have been introduced into Congress 
by members of the commission sent abroad to study foreign systems. These 
bills provide for long-term loans. Short-time loans will be covered by separate 
measures, to be considered later. [Abstract of bill is given.] Whether such 
legislation will provide the best solution of the long-time loan problem remains 
to be seen. There are many varying opinions as to its practical value. Land 
banks must be worked out cooperatively by individuals and communities to meet 
business needs, which vary in different places. Methods which have been suc- 
cessful in other countries may fail here. Legislation alone can not provide 
long-time credits. 



[Editorial from the National Stockman and Farmer, Feb. 7, 1914, v. 37, No. 45, p. 1163.] 
Money Can Not Be Made Cheap by Law. 

cheap money. 

Money can not be made cheap by law or any other artificial means. It will 
flow naturally into the channel most advantageous to its owner. It can not, 
therefore, be cheap where the demand exceeds the supply. Foreign credit sys- 
tems have the advantage that money is normally cheap, the result of centuries 
of accumulations. The systems of rural credit proposed may make money 
cheaper by improving the security on which it is loaned, but they can not per- 
form the miracle of making it absolutely cheap. 



100 RURAL CREDITS. 

[Kditorlal from the Pennsylvania Fanner, Jan. 17, 1914, v. 35, No. 3, p. 50.] 
Currency Law : T'njust to Farmers. 

farmers am) the currency law. 

The farms and the men operating them form practically the only class that is 
harred from doing credit business with the national banks. This condition 
existed under the old banking law, and it was not remedied in the bill recently 
passed. The lawmakers recognized the injustice of the provisions of the cur- 
rency bill, but were not willing to rectify it. Instead, they are now preparing 
to pass a rural credit bill or establish special banks for farmers. 



[Editorial from Farm and Home, Feb. 1, 1914, v. 35, No. 736, p. 98.] 

Land-Mortgage Banks : Advantage to Farmers. 

land-mortgage banking reform. 

If farmers can win the present fight in Congress for a national system of land 
mortgage and cooperative banks, the American poeple will enjoy the best finan- 
cial system in the world. It will be a great improvement upon the European 
aystem. 

[Editorial from the Country Gentleman, Feb. 7, 1914, v. 79, p. 244-] 

Rural Credit: Farm Lands and the Money Market. 

rural credit boiled down. 

Net results of the agitation of the past two years on rural credit and the 
trip of the commission to Europe are awakened public interest; a 900-page re- 
port on European systems; and a bill in Congress to establish land-mortgage 
banks. Our rural-credit problem is money for development and improvement. 
The commission has done good work in starting public opinion and the wheels 
of Congress toward the end of putting agriculture on the same basis as the 
railroads, manufacturers, etc. The owners of land asks no special privileges, 
but he has a right to expect that farm land will be made equal to city real 
estate in the money market. 



[Charles A. Conant in the Country Gentleman, Feb. 7, 1914, v. 79, p. 235.] 

Federal Banking- Law : Benefit to Agriculture. 

uncle sam finances the farmer. 

In addition to the general advantages which the agricultural producers will 
share with others, the new Federal banking law embodies several provisions 
inserted for the special benefit of the farmer. Among these are the following: 
The farmer may get money to buy supplies instead of taking pay in store 
credits; notes drawn for agricultural purposes, or based on live stock, may 
run for 6 months instead of !><> days when presented to a Federal reserve bank 
for discount; the farmer can get his money at once on a draft for goods ex- 
ported instead of having to wait for a return from abroad; the farmer may 
borrow money on his lands from national banks. 



[Editorial from the Field and Farm, Feb. 7, 1914, v. 29, No. 1462, p. 4.] 

Financing the Farmer: Necessity for Long-Time Loans. 

helping out the farmer. 

The present Congress must give the farmer better banking facilities or there 
will be great dissatisfaction. The manufacturer can hasten production, the 
storekeeper can restock his store several times a year, but the farmer's dates 



RURAL CREDITS. 101 

are fixed by nature. Loans long enough to cover the period of production are 
a necessity for the farmer. "People's banks" serve this purpose abroad, and 
Congress can do the country a good turn now by enacting legislation to meet 
this need. 



[Extract from the New England Homestead, Feb. 7, 1914, vol. 68, No. 6, p. 162.] 

Farm-Land Banks: Everyone Should Try to Aid in Passage of Bill. 

national farm-mortgage plan. 

Acting for the rural credits commission sent abroad last summer, Mr. 
Fletcher, of Florida, introduced into the Senate, and Mr. Moss, of Indiana, in- 
troduced into the House, the administration's bill for farm-land banks. This 
bill provides for long-time loans only; later on another will be introduced to 
provide for cooperative savings and loan banks and short-term personal credits. 
Everyone who is interested should write for a copy of the bill, and, after study- 
ing it carefully, write his suggestions to his Congressman or Senator. [Abstract 
of bill is given.] 

[Extract from the Orange Judd Farmer, Feb. 7, 1914, vol. 56, No. 6, p. 188.] 

Money Market : Interest Rates Lower. 

the money market. 

Interest rates on money are lower at this time, and it is the general con- 
sensus of opinion that money will work easier for some weeks or perhaps 
months. This state of affairs should facilitate the carrying out of the pro- 
posed farm finance plan which Congress has before it. 



[Extract from the Nebraska Farmer, Feb. 4, 1914, vol. 56, No. 5, p. 135.] 
Land-Mortgage Banks : To Help Tenants to Buy Land. 

LAND-MORTGAGE BANKS. 

Bills have been introduced into both Houses of Congress to provide for th« 
organization of land-mortgage banks. These bills are supposed to represent 
the views of the administration on this question. [Abstract of bill.] It is 
questioned whether any land-mortgage system would help tenants to buy land, 
because making it easier to buy would increase the demand and raise the price, 
thus offsetting the advantage of cheap money. 



[Editorial from Campbell's Scientific Farmer, Jan., 1914, vol. 7, No. 1, p. 12.] 

Farm Credit : Need for Legislation. 

now for a farm-credit law. 

The farmer, with the best and most permanent assets in the world, has hereto- 
fore been kept outside the railings of the national banks. If he wanted to 
borrow money, he had to pay 10 per cent and a commission besides. We hope 
this regime is about to end. If President Wilson can release farm credit 
from its 60 years of bondage he will have accomplished a great good. 



[Editorial from Farm, Stock, and Home, Jan. 15, 1914, vol. 30, No. 2, p. 38.] 

Rural Credit — History of Movement. 

rukal credit matters. 

The work of the American Credit Commission to Europe divulges nothing 
new. A certain amount of publicity was accomplished, however. The history 
of the rural-credits movement began by the appointment of a committee of 



102 RURAL CREDITS. 

the Tri-State Grain Growers in mil!. The report of this commission was 
published in Farm, stock', and Borne In a series of articles called "The road 
to cheaper money." The aexl move occurred at the Chicago convention on 
marketing and credits In 1913 when, through Prof. Spillman, of the United 
States Department of Agriculture, a Federal investigation in the rural credits 
was secured. Congress lias the material in hand to work out a system suited 
to the needs of the American farmer. 



[Extract from Farm and Home, Feb. 15, 1914.] 

ONE STEP X TAKER TO VICTORY. 

The national farm-land bank bill', submitted to House and Senate at Washington 
January 29, is fine. Changes that will be made will further perfect it can be 
made before it is enacted. The United States commission has done a good 
job. Congratulations. Now lot Congress enact it into law before May. 



[Extract from the National Farmer and Stock Grower, February, 1914, vol. 31, No. 2, p. 13.] 

National Farmer and Stock Grower Started Rural Credit Agitation. 

farm loans and credits. 

The agitation originally started by the National Farmer and Stock Grower 
on the subject of the " High rates of interest on farm loans " is about to bear 
fruit. The administration rural-credit bills were introduced in the Senate and 
House on January 2'.t. [Abstract of bill given.] 



[Editorial from the Pacific Rural Press, Feb. 7, 1914| vol. 87, No. G, p. 163.] 

Farm-Land Banks Will Make Money Cheaper. 

that cheaper money is coming. 

President Wilson has commended to Congress the establishment of a bureau 
of farm-land banks. These banks may do only agricultural business. These 
banks will insure cheaper money. 

Mr. Seldomridge. Did you say there had been an effort made to 
institute a campaign against this bill? I have had two letters from 
people in my district protesting against the passage of the Moss bill 
as being a banker's bill. 

Mr. Moss. I know there has been such an effort. I have the infor- 
mation, and if the committee cares to have to do so I can put the 
letters showing that in the record to-morrow. 

Mr. Hayes. I notice the Practical Farn er, which seems to be a 
high-class publication, has an article commending the Moss bill. 

Mr. Moss. I have seen that editorial. It is quite favorable. I 
would like to withhold the editorials until I can go over them again. 

Mr. Seldomridge. It occurs to me that if Members of Congress are 
going to become the recipients to any great extent of those antago- 
nistic letters Ave ought to have those letters which favor the bill in- 
serted in the Congressional Record. 

Mr. Hayes. They could be printed in the record of these hearings. 

Mr. Platt. xVnd we can send them a copy of the record. 

Mr. Seldomridge. But it will be some time before this record is 
available, and they will not all see that. 



RURAL CREDITS. 103 

The Chairman. If we are going to insert all the letters commend- 
ing or protesting against the measure, we will have the printing bill 
out of all proportion. I am getting letters every day on the subject 
from people from every State in the Union. But these letters that 
Mr. Moss has presented here to-day are newspaper comments upon 
the bill, and they have some responsibility behind them, and I think 
they ought to be printed with our record ; but while I think we may 
from time to time have further documents and papers presented that 
will be worth printing, I would not want to consider printing indi- 
vidual letters in the record of the hearing. 

Mr. Seldomridge. Well, I do not want the Members of the House 
prejudiced against this bill. 

Mr. Bulkley. I think Mr. Seldomridge is right in the purpose he 
has in mind, but it would not be practicable to encumber the record 
with too many letters from individuals. 

Mr. Hates. His thought is that if we could get the letters where 
they could be read by the Members of Congress and the people it 
would stop that campaign. 

Mr. Bulkley. I hope that Mr. Moss will explain fully to the com- 
mittee all that he knows about any campaign against this bill, because 
that is part of the subject matter before us. 

Now, gentlemen, it is near the time for the funeral services in 
honor of Senator Bacon to begin, and without objection the meeting 
will stand adjourned until 10.30 o'clock to-ir.orrow morning in this 
room. 

(Thereupon, at 12.35 p. m., the committee adjourned until to- 
morrow, Wednesday, February 18, 1914, at 10.30 o'clock a. m.) 

(The following additional statement of Mr. Moss was made at the 
session of the committee on February 18, 1914, but is placed at this 
point to preserve the continuity of his argument.) 

STATEMENT OF HON. RALPH. W. MOSS— Continued. 

Mr. Moss. Mr. Chairman, with the permission of the committee, 
there are two things that we passed over yesterday which, after re- 
flection, I should like to discuss a little more fully. 

The first is, briefly, the length of time of the loan. It has been 
placed in this bill at 35 years. The statistics before your committee, 
furnished by Mr. Thompson, indicate that 74 per cent of the farm 
mortgages are renewed. It is a matter of common knowledge that 
a great many mortgages are not paid at the time they are due, and 
yet are not renewed; but where statutes of limitations protect the 
holder of the mortgage and make it still a valid claim against the 
land after maturity, they are permitted to run on from year to year 
until final payment is made. 

The significance of that is that, under present conditions, five years 
is a shorter time than that in which the average man repays his loan. 

Now, while I am perfectly willing to admit that 35 years seems 
to be a long time — and in my correspondence on the bill that feature 
of it has been criticized — I want to call the attention of the com- 
mittee to the fact that amortization works best under a compara- 
tively long period of years. Amortization is not well suited to a 



104 RURAL CREDITS. 

short-term loan, because the rate of repayment would be relatively 
too high. 

The provision in this bill giving the borrower the right to repay 
all or any part of his indebtedness at any time after five years gives 
the borrower every protection; and if we are to adopt compulsory 
amortization, we should do so under conditions most favorable, which 
is to permit the loans to be made for a relatively long period of time. 
Otherwise, the rate of annual payments will be so high as to prevent 
the plan from going into general operation. So that I feel that the 
term of years is an important matter on that account. 

Mr. Hayes. Well, without studying these statistics very extensively, 
it has occurred to me that 20 or 25 j^ears would be as long a period 
as they would ever be called upon to make loans for in this country. 
Have you any statistics showing whether any farm-land loans have 
ever been extended beyond, say, 20 years? 

Mr. Moss. Well, that is not the primary question. The primary 
question is this: The annual rate of repayment that a borrower can 
make in justice to his earning power. Under amortization, if the 
loan runs for 20 years, the periodic payment must be fixed at such 
a rate as to entirely extinguish the loan within 20 years. 

Mr. Hayes. Certainly. 

Mr. Moss. xVnd the periodic payment's must be correspondingly 
high. The result is that there would be many persons in some sec- 
tions of the United States who would not be able to make with safety 
as heavy a periodic payment as would be required with a short 
amortization. 

Mr. Hayes. Of course. 

Mr. Moss. Therefore, it is not a question whether the borrower 
would be able to pay in 20 years or not; but the question is whether 
the people will go into the plan under an amortization system which 
involved heavy forced payments. 

Now, in France, Germany, and other European countries, they 
have a provision whereby they can make loans with amortization that 
for the first term of years — say, five years — there shall be no amortiza- 
tion payments made, but that amortization paj-ments shall begin after 
the expiration of the preliminary term. 

If the committee sees fit to adopt that rule and put it into the 
bill, then it ma} 7 be possible to reduce the term of years from 35, 
as fixed in the bill. But the point is that amortization payments 
naturally lend themselves to loans for a long period of years, because 
the amortization payment adds to the amount of each interest pay- 
ment made, and a great many persons will accept these loans at a 
longer period who would not accept them if they were forced to 
make a high rate of payment by reason of the short term. And the 
criticism that has reached me from farmers upon this subject is that 
the amortization would cause such a high rate that the farmers would 
not enter the system. 

Mr. Hayes. I want to ask you. Mr. Moss, if you think it is de- 
sirable — you have given this matter more study than I have — to 
encourage a man who could not pay otf his mortgage in, say, 20 
years, or who thought he could not pay it off in 20 years, to borrow 
money? For instance, take the case of a man that thought he must 
have 35 years in which to pay up; do you think that would be a 
healthy thing to encourage in this country? 



RURAL CREDITS. 105 

Mr. Moss. Well, Mr. Hayes, under American conditions we have 
been in the habit of paying our loans upon land mortgages in a much 
shorter time than that; but the price of land has been much lower 
than it is now. Land values have doubled in the United States in 10 
years. They will probably go higher in the future. And as the 
land increases in value, naturally the period of repayment out of 
the proceeds of the land will be longer. And having that view of 
the matter in mind, I can see no reason why a farm-land bank should 
not be permitted to undertake a mortgage for a 35-year period 
when the borrower can pay it off as much earlier than that as his 
interest would make desirable to him. 

There is one feature that I would be perfectly willing to see in- 
corporated in this bill which is not now in it, and that is that where 
a loan has been made for a long period of time, with fixed periodic 
payments, the bank should not be permitted to reloan to the man hi? 
savings, which are represented by his amortization payments. 

In Europe it is a constant practice for a man to return to the same 
institution to renew his loan to the original amount, and thus it is a 
constant temptation to a person in debt to draw his savings back 
from the bank and put them in his business instead of paying his 
loans. That is on the same principle as where a life insurance com- 
pany will lend a person money on the security of the paid-up value 
of his life insurance policy. This makes the system popular, but 
strips it of its savings feature. When a loan is made to the farmer, 
and then the institution encourages him to make supplemental loans 
and keeps him perpetually in debt, the practice might become a 
real fundamental objection to this system. We did not attempt to 
meet it in the bill ; but I want to point out that it is the one objec- 
tionable feature; and if the committee can see any way to check that 
practice, it would strengthen this bill. 

Mr. Hayes. The thought I wanted to suggest is whether it would 
be a healthy thing to encourage men to run in debt and use the money 
they borrowed as their working capital for such a long period of 
time as 35 years as a practical proposition. Is that a healthy thing, 
to pay interest for 35 years on the mortgage? 

Mr. Moss. I am confident, Mr. Hayes, that there is no valid ob- 
jection to that, where land is selling for $250, as it is in the corn 
States, and in the trucking sections very much higher than that, 
and where purchasers must assume these very heavy capitalization 
risks, together with the necessary improvement that will be made — 
it seems to me that if a person could pay for a farm even in 35 years 
he ought to be encouraged to undertake the purchase. 

But that is not the point in this question of permitting this pro- 
vision to remain in the bill. The condition I want to urge upon the 
committee is this, that if you limit the period to 20 or 25 years you 
compel the farmer who borrows the money to make very heavy 
periodical payments, and you will deter a great many people from 
assuming that debt, because their first payments would be too heavy. 
The amortization feature lends itself very readily to loans for a 
long period of time. I do not believe, however, that you should 
name a period longer than 35 years. 

Mr. Bulkeey. The provision in the bill means that 35 years is the 
outside limit for which loans may be made, does it not, Mr. Moss? 

Mr. Moss. Yes. sir. 



106 RURAL CREDITS. 

Mr. Bulkley. And they may be made, of course, for a lesser 
period. Is that at the option of the borrower? 

Mr. Weaver. The bill provides, at any time after five years the 
loan may be paid off at the option of the borrower. 

Mr. Platt. Is not the long period of amortization going to in- 
crease the price of the land to the purchaser? For instance, if I 
am selling a piece of land, will I not be apt to say to the man who 
desires to purchase, " You do not need to pay this off for 35 years ; 
consequently you can afford to pay me $12,000 instead of $10,000 for 
the land." Would it not have that effect? 

Mr. Moss. I do not see how it would have that effect, because the 
man who buys the land receives his credit from the bank, and the 
purclia.se money is paid to the seller in cash. The purchase of the 
land is made upon a cash basis, the credit being given by the bank, 
which has no interest whatever in the land before it is sold. 

Mr. Hayes. I do not recall whether your bill provides that at the 
end of five years the mortgagor may pay off a part of the debt? 

Mr. Moss. Yes, sir; any part. 

Mr. Hayes. Well, that would remove one objection to the long 
time of the mortgage. 

Mr. Brown. It is all optional after five years? 

Mr. Moss. Yes. The 35 years named in the bill is the maximum 
time ; and it could be paid in a much shorter time than that. 

Mr. Hayes. Well, if that provision was made, that the borrower 
could pay any part of the debt after five years, that would remove 
much of the objection I spoke of. 

Mr. Coulter. The European period is longer than 35 years; it is 
50 or 60 years. 

Mr. Moss. Yes; it is 50 or 60 years, and sometimes as high as 75 
years. But, then, the difference between European conditions and 
our conditions is the high price of land. Referring back to Mr. 
Brown's question, the time of repayment must be fixed in the con- 
tract and can not be changed, because the periodic payments remain 
always the same. 

Mr. Brown. The same ; yes, I see. 

Senator Shafroth. You say. Mr. Moss, that Europe has lands that 
are very high in price. Do you know about what the agricultural 
farm sells for per acre in Europe ? 

Mr. Moss. Yes, sir; agricultural lands in Europe have a value of 
$200 to $700 an acre; and from $300 to $500 is a common price on 
agricultural lands in Europe. I inquired about that when I was 
over there. 

Senator Shafroth. In what country was that? 

Mi-. Weaver. Were you in Holland and Belgium and that part of 
Europe ? 

Mr. Moss. No, sir. 

Mr. Bulkley. Why do you limit the period to 35 years? What 
would be the harm of having a longer period? 

Mr. Moss. Just exactly on account of Mr. Hayes's objection. It 
seems to me that we ought not to encourage a longer period than 
one in which the average time of repayment can be met by the average 
farmer. I take it that the average farmer's income in America is 
greater than the average European farmer's; and therefore the 
American farmer ought to repay in a shorter period than the European 



SURAL CREDITS. 107 

farmer; and the farmer in America ought to accumulate as much in 
35 years as the European farmer in 54J years; besides, the price of 
land is lower here than over there. 

Mr. Hayes. Probably more. 

Mr. Moss. Yes, sir. 

Mr. Platt. As these amortization payments are made, the mort- 
gage still stands recorded for the full amount of the loan, does it 
flOt? 

Mr. Moss. Yes, but under this bill the credits are at once made in 
favor of the borrower by the Government agent ; a man can not lose 
the payments he has made, although on the record it will remain 
the same. 

Mr. Platt. Then there would not be anything to prevent the bor- 
rower from going to another source — for instance, a savings bank 
or some other kind of bank — and borrowing more money on a second 
mortgage? 

Mr. Moss. Oh, no; he could do that, of course. He has that 
privilege now, and this bill would not influence the practice of 
negotiating second martgages in any respect. Now, in the mortgage 
itself under this bill, there is set out on the face of the mortgage 
the periodic payments that must be made; and every payment that is 
made is credited on the instrument itself. 

Mr. Platt. On the mortgage? 

Mr. Moss. Yes; on the mortgage; and the Government agent is 
compelled by the bill to see that the credit is given, as w T ell as to see 
that the money wdien paid is turned over to the bondholder. The 
Government agent must protect both the borrower and the bond- 
holder. 

Referring to the question of Mr. Bulkley yesterday, concerning the 
limitations on loans, I wish to discuss that and present some statis- 
tics which I have gathered. 

I stated yesterday that I was certain the limitation was too low 
in this bill. The chairman suggested a double limitation, in which 
I fully concur. 

The average amount of loans on mortgage in the United States 
is $1,700. But that is not of as much imporance to you as if you 
had the actual face value of a large number of mortgages; and I 
have taken the pains to go over some mortgage statistics, both in 
Austria and in Germany, to secure this result. 

I have here the loans made by the National Small Holders Insti- 
tute of Hungary. I wish to say to the committee that there are two 
great mortgage institutions in Hungary, one that is created by the 
nobles for large holdings and the other is created to make small 
loans. 

I have selected the one that makes the small loans. They had on 
their books 66,264 mortgages. Now, the average loan of the 66,264 
mortgages was $868. The loans amounting to $400 or less comprised 
53 per cent of the total number of loans. Between $400 and $2,400, 
the loans were 41.2 per cent of the total loans. The loans of $2,400 
and over comprised 5.67 per cent of the total. 

As I have stated, that is not a fair example, because it designedly 
comprehends only the small holder, and the figures are therefore 
below a fair average. 



108 RURAL CREDITS. 

Taking the Hungarian Land Mortgage Institute, which is adapted 
to the larger landowners, the average amount of their mortgages 
was $('.,400. 

I have here complete statistics of three credit associations in Ger- 
many; and, as it will only take a moment, I should like to read them 
to the members of the committee. 

Taking the Bavarian Agricultural Bank that had on its books at 
the time I visited it 25,327 mortgages, those for amounts up to 
$250 comprised 1,835 mortgages, or 7.24 per cent of the total 
amount — I mean in number. Those mortgages aggregated $353,550 
in amount; and that was 0.8G per cent of the total amount of money 
that this institution had loaned. 

Taking the mortgages between $250 and $750, there were 7,885 
of those. That comprised 31.13 per cent of the total number. Now, 
remember that there are two percentages, one in the total number 
and the other as to the total amount. The aggregate amount for 
this class of loans was $4,257,950, and amounted to 10.37 per cent 
of the whole amount of money they had loaned. 

Between $750 and $1,250 there were 6,599 mortgages, aggregating 
$G,8G5,850, which comprised 16.72 per cent of their total business. 
This amount was 26 per cent of the whole amount. 

Between $1,250 and $2,500 there were 5,550 mortgages, aggregating 
in amount $10,495,750, or 25.54 per cent. It is between these limits 
that the large amount of business is done. 

Between $2,500 and $5,000 there were 2,449 mortgages, amounting 
to $8,886,775, which was 21.64 per cent of their total amount of 
business. 

Between $5,000 and $12,500 there were 882 mortgages, aggregating 
$6,186,000, which comprised 14.87 of their business. 

Between $12,500 and $25,000 there were 129 mortgages, aggre- 
gating $2,275,400, or 5.33 per cent of their business. 

Over $25,000 they had 42 mortgages, aggregating $1,833,000, or 
4.47 per cent. There are some other figures here which it is not 
necessary for me to read. 

Now, it seems to me that any mortgage institution in this country 
ought to have the right to loan up to $5,000 

Mr. Hayes (interposing). Do you think that is high enough? 

Mr. Moss. No; it is not high enough. But I say "any mortgage 
institution." In this bill w r e commence with $10,000 capital; a loan 
of $5,000 would mean 50 per cent of its capital. But in the case of 
a larger institution, one with $50,000 or $100,000 or $150,000 capital 
and surplus, if you made it that rate the loans could be too large. 
My suggestion to the committee would be this: To permit any bank 
organized under this system to loan up to 50 per cent of its capital 
and surplus, with a limitation on any individual loans to $10,000. 
Larger banks should loan at least $10,000 on their initiative, and 
may be permitted to loan higher amounts with the permission of 
the commissioner of farm-land banks or the national bank examiners 
after they had examined into the matter. 

There are no limitations upon the amounts of loans of European 
land banks, with the exception that the large loans can not be made 
by the directors of the bank, but only after consultation with the 
governmental authority over the bank. 



RURAL CREDITS. 109 

Mr. Hates. Well, do you not think that the purpose of these land- 
mortgage banks might be entirely defeated by allowing the banks 
to make too large loans? 

Mr. Moss. That is true. 

Mr. Hayes. I should think that $10,000 would be about the limit 
of what they should be allowed to loan to one borrower. 

Mr. Platt. Have not the European banks a limit of the amount 
of loans, in proportion to their capital? 

Mr. Moss. No, sir. European banks are not limited, except that 
veiy large loans are made only with the permission of the Govern- 
ment. But I want to call your attention to the fact that land-mort- 
gage banks in European countries were first organized among the 
nobles who held large estates, and it was at first only the wealthy 
class that could take advantage of the loans ; and hence the first loans 
were very large. 

Now, the intensive work on these small farms and the growth 
of democratic principles has forced the amounts of the loans down. 
But the trouble has been all the time in Europe to get the benefits 
of the mortgage loans to the small landowner. And you will find 
that the average loans made by these land-mortgage institutions in 
Europe are larger than they ought to be in this country, because 
small loans there are handled largely by the savings banks, which 
are more democratic than these other institutions were in the begin- 
ning. 

In drawing this bill the commission, knowing these facts, sought 
to overcome that trouble by making it possible to organize small 
banks and to bring this system at once under the influence of the 
average farmer, and in that way avoid the years of struggle which 
they had in Europe to carry the system from the big landholder down 
to the small landholder. 

For this reason I think that any bank ought to be permitted to 
loan a small amount of money; but even a bank with only $10,000 
capital ought to be permitted to make a loan at least to the extent 
of $5,000, which is of itself only half the value of 40 acres in the 
corn belt or even 10 acres in the trucking section. 

And I think that a bank which is somewhat larger ought to be 
allowed to handle $10,000 loans. And that being true, you can 
fix a limit based upon the capital stock and surplus plus an absolute 
limitation. And if the committee will agree to larger loans than 
that limit I would suggest that the larger loans should be accepted 
with the permission of the national bank examiner or the commis- 
sioner of farm-land banks, or some other governmental authority. 

Mr. Bulkley. Do I understand you to say, Mr. Moss, that a limit 
should be placed upon the amount of money which any one indi- 
vidual could borrow from the farm-land bank? 

Mr. Moss. Decidedly so. 

Mr. Bulkley. But you have not reached a conclusion as to how 
much that limit should be? 

Mr. Moss. I was just about to say that if I was drafting this bill 
finally I would not give the directors of the bank the power to make 
a loan of their own initiative for an amount larger than $10,000 to 
any one individual; but I would not absolutely limit it to $10,000; 
but if the bank desired to make a larger loan than that to an indi- 



110 RURAL CREDITS. 

vidual they should call the matter to the attention of some govern- 
mental authority — for instance, the commissioner of farm-land 
banks — and get their permission to make a larger loan in that case. 

Mr. Bulklev. AVould you put any limit on the amount of a loan 
to any one individual which the commissioner of farm-land banks 
could permit the bank to make? 

Mr. Moss. 1 would not think that necessary, if you were going to 
call in a governmental authority. 

Mr. Woods. Mr. Moss, your referring to this class of loans reminds 
me of the statement I understood you to make yesterday, that the 
establishment of a system to loan on farm mortgages was established 
in all the European countries before the personal-security credit sys- 
tem was established in those countries. 

Mr. Moss. That is true. 

Mr. Woods. Well, a little further investigation of that question 
would be a good thing, because I think you are entirely wrong about 
that. The first statement in your report, with regard to France, 
shows just the contrary — that the personal credit was established 
first. 

Mr. Moss. Well, Mr. Woods, in that matter I do not want to 
argue- 



Mr. Woods (interposing). That it was established several years 
before the other. 

Mr. Moss. Yes. I do not wish to take issue with you upon that 
matter; I will just let your remark stand in the record. As a matter 
of fact, however, the present personal-credit system, which is work- 
ing well in France, has been put in operation since 1895. That is a 
fact. 

Mr. Woods. That is what it says here [indicating]. 

Mr. Moss. Yes. 

Mr. Woods. And that the land-mortgage bank was established in 
France after that. 

Mr. Platt. Oh, no. 

Mr. Moss. No; not after that. 

Mr. Woods. That is one of the first statements contained in these 
printed reports. 

Mr. Moss. No; the land-mortgage system was established in 1850 
or 1852, showing that the land-mortgage credit preceded personal 
credits in France by nearly half a century — not quite that. 

And, going back, the first land-mortgage association in Germany 
was founded in 1770, whereas the Raeffeissen Bank and the Schulze- 
Delitzsch Cooperative Societies were founded almost within the 
memory of living men. 

Mr. Woods. That is true in Germany. 

Mr. Seldomridge. Mr. Moss, what policy is pursued by European 
countries in the handling of their land-mortgage institutions to elimi- 
nate the land speculator? 

Mr. Moss. I do not quite understand what you mean by "land 
speculator." 

Mr. Seldomridge. I mean the preventing of men going out and 
buying farm- one man buying several farms and earning mort- 
gages in those banks on those farms. 

Mr. Moss. Yes, sir. 



RURAL CREDITS. Ill 

Mr. Seldomridge. And then putting the farms in the hands of 
tenants. 

Mr. Moss. There is nothing that would prevent that practice. But 
that is overcome by the method by which the land itself is trans- 
ferred. For instance, in Germany, when any large farm is offered 
for sale and the owner of the farm comes to an agreement with the 
bu} T er, before that transfer can be made it must be reported to the 
Government, and then if any cooperative society desires to buy the 
farm for the purpose of dividing it up among small holders the co- 
operative society has the first opportunity of buying it at the same 
price which was offered by the private individual; and it would 
therefore be bought up for the purpose of division among small 
farmers rather than permitting one person to buy it in its entirety. 
To be specific, I am speaking now of the Kingdom of Bavaria. 

But the whole system in Europe is worked with the object of di- 
viding the farms up into small holdings. That is just one of the 
ways by which they undertake to do that. 

Mr. Seldomridge. I can conceive of a policy here that might per- 
mit men, for the purpose of speculation, to go out and buy farms 
that have been mortgaged for one-half their value and, by the pay- 
ment of 5 or 10 per cent of the purchase price down, getting posses- 
sion of large tracts of land and then leasing those out to tenants — a 
policy which we do not wish to favor. 

Mr. Moss. They could not do that under the provisions of this 
bill, because the loan is limited to 50 per cent of the value of the 
land and the purchaser would have to put up 50 per cent in cash in 
order to buy the land and obtain possession of it. 

Mr. Hayes. And he could not make a second loan ; one loan is all 
he could make with these land banks. 

Mr. Seldomridge. He could not get the second mortgage from the 
land bank, but he might secure it from other sources? 

Mr. Hayes. Yes; of course. 

Mr. Seldomridge. We have a very inventive class of people in 
this country in the real estate business, and it seems to me that we 
ought, if possible, to put in the bill safeguards that would prevent 
those speculative practices. 

Mr. Moss. Yes. 

Mr. Brown. Is there as much real estate speculation abroad as 
there is in this country? Do the farms change hands as rapidly 
there as they do here? 

Mr. Moss. No, sir. That is one of the reasons that makes farm- 
land mortgages such good security, because the farms have passed 
through the stage of speculation ; the value of the land, as a rule, is 
settled. I am confident that there is not nearly the same change in 
land values in European countries that there is here. 

Mr. Seldomridge. Could we not put a provision in the bill pre- 
venting the giving of a second mortgage on any of the land upon 
which loans are made by these banks? 

Mr. Moss. The banks have not the power to do that under the 
provisions of the bill. 

Mr. Seldomridge. But I mean loans by some other institutions. 

Mr. Platt. We could hardly do that. 



112 RURAL CREDITS. 

Mr. Moss. No; you could not do that, I am reasonably sure. Now, 
coming to the point where we finished yesterday, I should like to call 
attention to the Federal agents. 

Mr. SixnoMRiDGE. But could you not provide that the first mort- 
gage should become due if a second mortgage was given? 

Mr. Hayes. You could do that, if it was desirable. 

Mr. Seldomridge. Yes; or a percentage of it. 

Mr. Moss. The fiduciary agent provided here in the bill is a broad 
original feature which I do not think you will find in any mortgage 
system anywhere. 

Mr. Hayes. What page is that on? 

Mr. Moss. Page 20. It is quite evident that there must be some 
governmental authority, or some third party that would either take 
physical possession of the mortgage or in some way guarantee the 
holder of the bond that, as the mortgage is paid, he will get his 
money. 

Under the Woodruff plan, which has been referred to in these hear- 
ings, Mr. Woodruff deposits his mortgages with a trust company in 
Chicago, which holds possession of the mortgage and guarantees that 
the bonds are protected by these mortgages, and the money passes 
really through the central trust company in Chicago. 

Now, that makes the holder of the bond absolutely secure, of 
course, because there is a great trust company holding the security; 
and yet you could not organize a general system on that same central- 
holding plan ; and the commission believes that, by authorizing a 
fiduciary agent who can neither be an officer or a director in the bank, 
but who may be an employee — for instance, there is no reason why 
he should not be a bookkeeper — having him appointed by the Gov- 
ernment, and making him in all senses of the word responsible to the 
Government and having no financial responsibility whatever to the 
bank ; his sole official duties are to see that the mortgages are credited 
with the payments made on them, and that the money is turned over 
to the bondholders, and having him stand there as an agent between 
the two parties — the commission believes, I say, that that would 
solve all of the difficulties and make it practically easy to put this 
system into operation. 

We have given this agent the powers enumerated under section 19, 
which it is not necessary to read now. You will notice, however, 
that the Federal agent certifies to every national land bond that is 
issued, and that no national land bond can be valid without his 
signature. 

That is for the protection of the buyer of the bond. 

Second, that section provides he shall have joint possession and 
control with the bank of the mortgages and deeds of trust which are 
deposited as security. And that, again, is for the protection of the 
bondholder. 

And third, it provides that he shall have supervisory control of 
all entries in the mortgage ledger kept by the bank: and it is made 
his duty to see that the payments are credited to the borrower. That 
is for the protection of the borrower. 

So that this man, the " Federal fiduciary agent," stands there as 
a Government agent in the bank, protecting alike the bondholder 
and the mortgagor; and under a system, I say, that would make this 
feature entirely workable. 



RURAL CREDITS. 113 

I would not say that this is the very best system that could be 
devised, but it is the best system that the commission could devise 
to meet this situation. 

Mr. Woods. Did the American commission join the United States 
commission in this report, Mr. Moss? 

Mr. Moss. No, sir. They neither joined in the report nor took any 
part in the preparation of the report or the bill. 

In the first place, the American commission had no funds with 
which to keep a committee here to help in working out this matter. 

Second, they, after careful study, decided that their responsibility 
was to their respective States or to the respective institutions which 
had commissioned them. And they were making their reports di- 
rectly back to the bodies and not making a report to Congress. 

The resolution under which the United States commission was 
appointed made it its specific duty to make a report to Congress ; it 
did not make it the specific duty of the commission to frame a bill, 
of course, but the commission felt that if we were going to make a 
report we should make it along specific lines, so that there would be 
something tangible to work upon, and that it would be better to make 
it in the form of a bill than in the form of general suggestions. 

Mr. Weaver. What sort of cooperation was there between the 
United States commission and this American commission, Mr. Moss? 

Mr. Moss. Well, the cooperation was to this extent: The money 
that was appropriated by Congress was spent very freely to carry 
out the educational activities of both commissions. As a matter of 
fact the American commission raised $1,200 for each delegate; $900 
of that was spent for travel and other minor expenses. The com- 
mission was at quite a heavy expense in assembling the commission; 
and it appeared that this $300 that was to have gone toward the 
payment of expenses for educational activity in Europe was practi- 
cally spent before the commission started. 

As a matter of fact, the United States commission, not entirety, 
but in large part, met stenographic expenses, for instance, and di- 
vided with the American commission the expenses of headquarters, 
and we have borne quite a large expense in preparing this joint report 
which is going out — -which is entirely legitimate, because Ave were 
ordered to cooperate, and we were working on a joint report; that 
is the extent to which we cooperated — the funds of each commission 
being expended jointly to secure a common result. 

The American commission gave us every advantage they could 
and all the material they gathered was placed at our disposal; and all 
the material we gathered was placed at their disposal; and, as a 
matter of fact, the officers of the American commission were chosen 
directly from the United States commission. I believe I am the 
only member of the United States commission traveling with the 
American commission that was not given an office in the American 
commission; but there were some reasons for that, I believing that, 
as a Member of Congress, I had a somewhat different responsibility 
from the others, and that I ought not to accept a position of that 
kind. I believed that I ought to remain free from any other re- 
sponsibility. There was the very closest cooperation between the 
two bodies and the utmost expression of good w T ill between them 
through their travels in Europe. 

37081—14 8 



114 RURAL CREDITS. 

Mr. Woods. Now, this joint report that you speak of; what is that? 
Has it been published? 

Mr. Moss. The joint report is (his document [indicating document 
on table]. 

Mr. Bulkley. Senate Document 214. 

Mr. Moss. Yes; Senate Document 214 is the joint report — not the 
complete joint report, because there are some other matters to follow. 

A.nd I may say that the United States commission in its official 
capacity did nothing except to study the financial feature of the 
situation— the financial institutions. The American commission, 
however, made a Aery much broader study; they took up the study 
of country life, markets, general cooperation, and educational mat- 
ters. And while the members of the United States commission as 
individuals worked with the American commission in this broader 
field, yet the distinctive work of the United States commission was 
limited to the financial field; and so we made a report only upon the 
financial features, and the American commission reported upon the 
broader field that they covered; and we, uniting our financial data 
with that gathered by them, called that a joint report. And this 
special report of ours was called the United States Commission 
Report. But, as I understand it, there is no criticism of this report 
from any member of the American commission, except such criticism 
as has been made by certain members of that commission in their 
minority report. 

The next question to which I wish to call the attention of the com- 
mittee is the admission of existing institutions. We feel that the 
bill is broad enough in this way and provides a further protection 
against possible monopoly. "x\.ny existing institution " will include 
a certain class of building and loan associations; and I want to say 
on this point that the "Woodruff institution would have no trouble 
whatever in organizing under this statute if it were enacted into 
law as drawn by the commission. 

Mr. Woodruff traveled with us quite a good deal in Europe. I 
have a personal acquaintance with him and am familiar with his 
ideas; and I say that, so far as the Woodruff institution is concerned, 
it would have no trouble whatever in operating under this law; and 
I am confident that the commission's plan would also appeal to a 
great many trust companies at the present time in the United States, 
and to practicallv all of these mortgage-loan associations in the 
United States. 

Mr. Hayes. Well, there is no objection to their reorganizing under 
this statute, is there? 

Mr. Moss. No; on the contrary, it is to be desired; and that provi- 
sion was put in the bill as an express encouragement for them to 
join the system. 

Mr. Hayes. Yes. 

Mr. Moss. So that not only would new organizations be formed 
under the bill, but there is the broadest possible opportunity given 
for the reorganization of existing institutions, making it as highly 
competitive and as attractive to as many institutions as possible. 
There has been every effort made in framing the bill to prevent 
these institutions from coming into competition with existing com- 
mercial banks, and, on the other hand, to make it of great value to 
all of those institutions that are loaning upon real-estate security; 



KURAL CREDITS. 115 

that is, to standardize loaning on farm mortgages. But there is a 
provision in the bill in regard to trust funds, and some of the Mem- 
bers of the House have spoken to me about that, and I would like 
to discuss that matter for a moment. 

Whenever the State legislation in any State shall meet the ap- 
proval of the Federal authorities, so that the banks in that State are 
working under such conditions under State laws that, in the opinion 
of the Federal authorities, give ample protection to the holders of 
their securities, it is provided that the bonds emitted by these banks 
shall be available for the investment of all funds that are so-called 
trust funds that are under the control of the Federal courts, and also 
shall be available for State trust funds where it is permissible under 
State law. 

Now, there are two purposes in view in this provision, not only 
to broaden the market for the bonds, but particularly to make them 
more attractive to the private investor. There are a great many 
private investors who would purchase a bond if it were recognized 
that it were a good enough bond for the Government and the State 
to accept it as security for trust funds. 

And it seems to me that the United States Government ought not 
to give its sanction and its supervision to the issuance of a bond that 
of itself would not be good enough and safe enough to be taken as 
security for the investment of trust funds under the protection of the 
Government. And I feel that this is quite an important feature of 
the bill ; beyond any question, all the land-mortgage bonds issued by 
the continental countries of Europe are made available for trust 
funds, except in certain countries where they reserve that investment 
field as a monopoly for Government operations. So that there is 
nothing unusual in the preferment here given. 

The other feature is the value of the buildings. Under this bill 
the amount loaned upon the buildings is limited to 20 per cent of the 
appraisement, which means that 90 per cent of the loans must be 
made upon the value of the real estate. Then it is provided that the 
buildings must be insured for the benefit of the bank holding the 
mortgage. Now, these provisions may be overcautious on the part 
of the commission. 

With regard to that limitation of 20 per cent on the buildings, it 
seems to me that when we consider the very poor character of the 
buildings on the average American farm, the fact that the improve- 
ments on those farms are often short lived, and considering the long 
time for which the loans will be made, we must put a rather small 
limit upon the amount to be loaned on the value of the buildings ; and 
we believe 90 per cent of the loan should be upon the land itself and 
that is a conservative provision. In Europe the buildings are very 
much more substantial than in this country. 

Mr. Hayes. They are generally constructed of stone and brick, are 
they not? 

Mr. Moss. Yes ; generally of stone and brick. And in Europe they 
have almost eliminated entirely the fire hazard. In fact, one of the 
greatest differences which you will observe in traveling through 
Europe is the high character of the improvements upon the farm, 
and the almost negligible loss that comes from fire and decay. Their 
buildings are very much more substantial, and are better fire risks 
than ours. 



116 RURAL CREDITS. 

Mr. Seldomridge. Excuse me, Mr. Moss, for interrupting you, but 
I should like to ask a question al tins point. 

Mr. Moss. Certainly. 

Mr. Seldomridge. How do the rates of fire insurance in Europe 
compare with the rates in the United States? 

Mr. Moss. Farm insurance in Europe is, I think, almost all carried 
by mutual risks. That extends so far as to include the farm animals. 

With regard to cities, I was told by the American ambassador at 
Rome that he was carrying a policy of $10,000 on his household effects 
in the city of Rome ; and he said he had forgotten the fee, but it was 
so small he did not see how the insurance company could afford to 
write the policy for the small amount which he was paying to insure 
$10,000 on his furniture. He said he had been in Rome four years 
and did not recall having seen a fire there in that time. 

And everywhere in Europe the fire risk has been almost totally 
and absolutely eliminated by their system of buildings. I noticed 
particularly the barns. They were generally made of stone or con- 
crete; they were of one story, and if you inquired why they did not 
have a second story the} 7 said if there was hay above the first floor it 
might catch fire and drop down and burn their animals, and there- 
fore they have eliminated that danger. The risk of fire is almost 
entirely eliminated. 

And I think the committee ought to take these facts into consid- 
eration in fixing the limit which may be loaned on buildings. 

And that brings up the question whether or not you ought to make 
any provision for the deterioration of the value of the property 
mortgaged. I am sure you will reach that question before you per- 
fect the bill. It is the conclusion of our commission that it is not 
necessary to provide for it under this bill. And I wish to say that 
I consulted briefly with Secretary Houston upon that point, and 
Secretary Houston's opinion coincided with that of the commission, 
that if you limit the amount of the loans as rigidly as they are 
limited in this bill, with an amortization feature, you can safely loan 
50 per cent on the average value of the American farm without any 
great fear that the deterioration of the farm itself will overcome and 
destroy the value of the security. 

I should like to call the attention of the committee now to the ques- 
tion of postal savings funds, sections 40 and 41 of the bill. There 
has been quite a movement in this country, by some persons who are 
worthy of consideration, for the adoption of a law providing that 
the postal funds should be made wholly available for loaning upon 
farm property. You know the Government has about $40,000,000 
in the postal deposits now. But under the new Federal reserve act, 
those funds can only be deposited in national banks. I call attention to 
that provision in the new bank law. A change has been made in 
this bill to remove that limitation of law and permit these funds to 
be deposited in this system of banks. 

Mr. Coulter. It is in section 16 of the bill, under the heading, 
" Specific powers." 

Mr. Moss. Yes, section 16. It is under subheading (a). It reads 
as follows: 

Every national farm-land bank shall have the following specific powers: 
(a) To accept and pay interest on deposits to an amount not exceeding 50 
per centum of the amount of its combined paid-up capital and surplus; to re- 



RURAL CREDITS. 117 

ceive deposits of postal savings funds to the same extent, and to pay interest 
thereon at the rate required of other banks receiving such deposits. The trus- 
tees of the Postal Savings System are hereby authorized and empowered to select 
national farm-laud banks as depositories for such funds, which banks, when 
required by the Secretaiy of the Treasury, sball act as fiscal agent of the 
United States. 

You will notice that there is no preference given to these banks 
over existing banks with regard to receiving postal savings on de- 
posit. There is, however, a provision in the bill requiring these 
banks if they receive postal savings funds to use them to make 
loans on real estate ; they can use them for no other purpose. 

It was the opinion of the commission that, in order that there 
should be no charge of favoritism, it would be well at the present 
time to give the new banks just the same right to receive postal deposits 
as other banks, and leave it with the postal authorities to make an 
equitable distribution between banks of postal funds. Certainly 
land banks ought not to be prohibited from receiving those funds on 
deposit; but if they receive them under this provision, they must 
invest the funds in farm-land mortgages ; they can invest them in no 
other securities. 

Senator Shalroth. What section of the bill is that you have just 
been reading ? 

Mr. Moss. That was section 16, but you will find in section 41, 
Senator Shafroth, this language: 

The postal savings deposits held by any such bank, except the 5 per cent 
reserve, may be invested only in first mortgage or first deed of trust loans on 
farm land. 

So that, under this provision, the trustees of the postal savings 
system could easily divert postal savings fund, if they desired to 
do so, and make them available for farm-land loans. It is not 
mandatory, but permissive, under the provisions of this bill. 

Mr. Platt. Mr. Moss, would this bill permit the Government to 
divert the postal saAdngs funds away from the neighborhoods in 
which they were deposited ? 

Mr. Moss. I should not think that it would. The only modifica- 
tion in the law here is that it makes it permissible to deposit those 
funds in these banks to the same extent that they can deposit them in 
the Federal reserve banks; and the restriction in the case of the 
Federal reserve bank is that they shall be deposited in the immediate 
locality in which they are received. 

Mr. Platt. Yes; I see. Would it not be well to repeat that limi- 
tation in this bill, somewhere ? 

Mr. Moss. That would be entirely agreeable to me personally. 
Would it be agreeable to you, Dr. Coulter ? 

Mr. Coulter. Yes, indeed. 

Mr. Moss. I wish to say that this section was written by the com- 
mission at our last sitting, because the law had been changed in 
regard to postal savings funds, and it was necessary to rewrite it, 
and that specific thought had not occurred to the commission. 

It is not necessary, I belive. for me to speak of the reserves in this 
system. We adopted the same system of reserves of deposits that is 
used under the new banking and currency act, namely, 12 per cent 
of checking deposits and 5 per cent of time deposits. 

I want to call the attention of the committee to the charges pro- 
vided for administration. In this bill these charges are fixed at 1 



118 RURAL CREDITS. 

per cent. It is not the feeling of the commission that the administra- 
tion charges will amount to 1 per cent, once the system is actually in 
operation. The Credit Foncier and, I think, some other institutions 
are limited to 0.G0 of 1 per cent. But competition regulates this 
charge, and almost universally in Europe 0.35 per cent in joint-stock 
companies is the charge made for administration expenses, and in the 
purely mutual associations it drops as low as 0.15 per cent. 

As this is a very competitive bill, involving widely competing in- 
stitutions, we may safely accept that competition will finally control 
the charges of the bank. Banks in Europe charging 0.35 per cent 
for administration and limited to the issue of 15 times their capital 
and surplus in bonds were making anywhere from 9 to 15 per cent 
annual profits and dividends. So that there is no question about 
reasonable profits. And yet those European banks have a some- 
what better opportunity to make money than these farm-land banks 
in this country will have, because the joint-stock banks have the 
right to loan upon all classes of real estate, and they also do business 
with cities, a communal business, that banks in the United States 
would not have. Cities in Europe do a loan business through mort- 
gage banks that would be done here through the issuance of munici- 
pal bonds. 

Mr. Hayes. You would not hold out the hope that the cost of 
administration could be reduced in this country under anything 
like present conditions to anywhere near 0.35 per cent, would you? 

Mr. Moss. If the commission had thought that, we would have put 
that limit in the bill. We thought we ought to be liberal in fixing 
maximum charges and allow competition to name the minimum. 
The opinion of the commission is that competition will bring it 
below 1 per cent. The point I want to make is that we put it at the 
maximum and leave it to competition to regulate it. I think it would 
be a serious mistake to put the administration charges too low. 

Mr. Hayes. Yes; of course, a man must have some hope of profit 
or he will not go into this business. 

Mr. Moss. Yes; and I do not believe that under present circum- 
stances 1 per cent is too high. 

I want to call particular attention, however, to the fact that these 
administration charges are to be computed on the principal sum re- 
maining unpaid. Now, there is a difference between this plan and 
the Woodruff plan. Under the Woodruff plan their administration 
charge is based upon the par value of the original loan, and that 
runs all the way through the life of the loan. But under the pro- 
visions of this hill as we have drawn it the administration charges 
will fall with each payment upon that part of the principal which is 
unpaid— which I think is undoubtedly the correct principle — and 
will not remain upon the par value of the loan. The committee, of 
course, will decide which it deems to be the best. But it seems to 
me that administration charges ought to be upon the sum the bor- 
rower owes the bank and not upon the original sum which he bor- 
rowed, and much of which may have been repaid to the bank. 

Mr. Platt. Will not that be a complicated thing to determine? 

Mr. Moss. No; one system is as easy of computation as the other. 
It is a question of mathematics, and while I am not an expert mathe- 
matician I can figure it out easily ; there is not a bank in the United 



RURAL CREDITS. 119 

States that will be troubled in the least about making the computa- 
tion, Mr. Piatt. 

Mr. Hates. Well, it just occurs that there might be a variation as 
to that; but your bill applies to each individual case? 

Mr. Moss. Yes. And I want to call the attention of the committee 
to the fact that the amount and number of payments to be made by 
the borrower are set forth in the mortgage and can not be changed, 
so that each instrument will bear upon its face just what sum the bor- 
rower has to pay in order to meet his periodic payments, which, I 
think, is a very good provision, as it enables the borrower to under- 
stand precisely the nature of the obligation he is entering into at the 
time he makes it. 

I would not speak of the appraisement committee if it were not for 
the fact I have received in my correspondence from critics of the bill 
certain criticisms of the appraisement committee as organized under 
the terms of the bill. 

The appraisement committee is to be composed of three persons, 
who shall be directors of the bank. However, the provision is that 
they shall appraise, or cause the appraisement to be made; therefore 
they are given full opportunity to employ an expert or to seek out- 
side advice, if they care to do so. But the three directors must be 
the responsible committee to the bank, which is entirely right and 
proper; but under the language of the bill they may make the ap- 
praisement themselves or cause it to be made by others. Therefore 
the persons who are criticizing that feature certainly have not read 
the language of the bill carefully upon that point. 

In regard to the examinations, we have provided for the same 
examinations that are given national banks, and have provided also 
that they shall be made by the same examiners, provided the Treas- 
ury Department wishes that to be done. I would probably feel that 
if the system becomes widely extended there would be special exam- 
iners appointed, and such provision is written in the bill; but in the 
early stages, where there would be just a bank here and a bank there, 
certainly it would not be economical to detail a special examiner to 
go out to make these examinations ; and so, under the provisions of 
the bill, any regular bank examiner may be detailed by the Treas- 
ury Department to make the examination, or the Treasury Depart- 
ment may select, if it cares to do so, a special examiner for this work. 

There is one other question under the head of " privileges " that 
I would like to discuss ; and then I want to sum up the whole matter. 
The word " privileges " probably ought not to appear in the bill. 
It would be very much better to have the word "powers" rather 
than the word " privileges." As this bill is constructed the banks 
have two powers. One is general, and every bank organized under 
the bill will have certain powers. That is set forth in section 16. 
There they are given general powers, and they are also given specific 
powers that are inherent in every bank that is organized; and it 
makes no difference in what State the bank may be located, all banks 
stand equal. There can be no objection to that. But later on in the 
bill, section 34, there are certain other powers which are here called 
" privileges." I am going to suggest that the word " powers " would 
be very much better than the word " privileges." 



120 RURAL CREDITS. 

Mr. Hayes. Excuse me, Mr. Moss, but the word " powers " would 
hardly cover it. 

Mr. Platt. No; that word would hardly cover it. 

Mr. Moss. You are, perhaps, right; but I was fearful lest the 
language might be const rued to mean special privileges, which would 
be in violation of good public policy. The bill reads: 

The foregoing privileges, or such of them as the commissioner of farm-laud 
banks, with the approval of the Secretary of the Treasury, may, by general 
rules applicable to all banks organized hereunder, from time to time designate, 
shall apply to national land-bank bonds issued under authority of this act only 
as when the following conditions (or such of them as the commissioner of farm- 
land banks, with the approval of the Secretary of the Treasury, may, from 
time to time, by Like general rules designate), are likewise put into effect in 
any State or States. 

Mr. Weaver. "Why can you not use both words, Mr. Moss? 

Mr. Moss. Very well. I am gratified that the committee correctly 
comprehends the purpose of the language. Now, I want to call j^our 
attention to the fact that these privileges or powers, whichever 
word you choose to use, are given to all the banks in any one State 
at the same time, and are given to every State at the same time 
that meets the rules and regulations laid down by the Federal au- 
thorities. There is absolutely no discrimination against any bank 
or against the banks of any State. So that, while at the beginning 
these general powers that every bank would inherently have would 
be given to every bank in the United States, these additional powers 
would be given just State by State as the States may met the regula- 
tions and requirements laid down by the Federal authorities. That 
is a feature that I called the attention of the committee to yesterday, 
that Ave were trying to create an inducement or better State legis- 
lation. 

I think there is no use to speak about the loan agencies or the sale 
agencies, but I will speak a word or two about the general adminis- 
trative features of the bill. 

It is modeled after the national banking law and placed under the 
Treasury Department, and gives very large discretionary powers 
to the commissioner of farm-land banks, but not as great powers as 
have been given to the Comptroller of the Currency. The national- 
bank system is the model for the world for efficiency of general 
administration, freedom from graft, for honesty, and for publicity, 
I say it is a model for the world in its purely administrative features, 
and we do not believe you could have any better model than that. 

But the commission has no pride about whether you call the 
ruling Federal ollicer "Commissioner of land banks" or by some 
other name; whether you give him $6,000 a year, or more or less 
than that sum. That is a matter that I should have no pride of 
opinion about. But it seemed to us, as the national-bank system 
has been honest and has been administered so well, that we could not 
adopt a better system of administration than our well-known Amer- 
ican model. 

Now. as to the result of the establishment of these banks in 
Europe. I think it may fairly be said that they have banished usury: 
they have given to agriculture as low rates of interest as other lines 
of business, and often as low rates as communities in their organized 
capactiy enjoy. 

Mr. Weaver. Let me ask you a question, just for information. 



RURAL CREDITS. 121 

Mr. Moss. Yes; certainly. 

Mr. Weaver. With regard to the laws in Europe, with which I am 
not familiar, with regard to usury, what penalties do they have 
under the laws there? We have a national-bank act which pre- 
scribes a penalty, and all the States have laws on the subject, some 
of which are very radical. For instance, in the old Indian Territory, 
where I used to live, a man who charged usury lost both principal 
and interest ; and that was formerly the law also in Arkansas and in 
some of the other States. 

Mr. Moss. I would not want to speak with definiteness upon that ; 
I presume Dr. Coulter could reply to that more definitely, and I will 
ask him to do so in a moment. I know, however, that in nearly 
every country of Europe the statement was made that before these 
banks were organized the interest ran from 20 per cent to even 100 
per cent, and usury was rampant. Dr. Coulter, what are the laws of 
Europe in regard to usury? 

Dr. Coulter. Some of the countries are entirely without any spe- 
cial law on the subject, depending upon their financial system to 
settle the whole question. Others have special laws against usury, 
and many of them are very local. For instance, in parts of Russia 
I found that the local administrative officers decided what was the 
proper or legal rate of interest. But the practice in Europe is so 
varying that it would be very difficult to answer the question exactly. 

Mr. Hates. The conditions are the same in this country. In some 
States there are no usury laws. We have none in California. 

Senator Siiafroth. And we have none in Colorado. 

Mr. Moss. I wanted to say that the fact that impressed me most 
in Europe was that there was very lax Government supervision. 
The banks in Europe have either a large capital or a high degree of 
responsibility to the shareholders. They have eliminated specula- 
tion by declaring the purpose of the loan, as a rule; and these facts 
have been a great protection, without the necessity for governmental 
supervision. They do not have the degree of governmental super- 
vision that we have in this country. 

Mr. Platt. It is usually agreed by students of finance that usury 
laws are out of date, and are either detrimental or inoperative. 

Mr. Moss. Yes. 

Mr. Weaver. I would not agree with that if all the political econo- 
mists and financiers in the world agreed to it. Of course, as a gen- 
eral proposition, you can not fix the value of money by a statutory 
enactment; but you can put penalties that will have a deterrent 
effect on some cold-blooded shylock who wants to take his pound of 
flesh. 

Air. Hayes. Did you ever know of a case where usury laws had 
any effect? 

Mr. Weaver. Yes; in our State. 

Mr. Hayes. I have lived in States where there was a high penalty 
for usury ; and I have never seen any difference resulting from them. 

Senator Shafrotii. I think the difference is in having a high usury 
rate. 

Mr. Weaver. Yes. 

Senator Siiafroth. I advocated a usury rate of 12 per cent, whicn 
was high enough to allow for extreme and unusual cases. But, as 
a matter of fact, some of the borrowers did pay that. 



122 RURAL CREDITS. 

Mr. Hayes. They will all do it; they will all find some way to 
get outside of the law. 

Senator Siiafrotii. But there is always a tendency for a man to 
keep within the law and have his actions lawful, if he can. 

Mr. Weaver. We had an illustration of that in Indian Territory, 
where a man who had loaned money at usury lost both interest and 
principal. 

Mr. Haves. But he can put the transaction in the hands of a 
broker, and have the broker charge a commission, and accomplish 
just the same thing. 

Mr. Platt. Yes. 

Mr. Moss. I think the usury laws in the District of Columbia have 
been generally disregarded. But it is the universal testimony that 
in Europe competition under this system of banks has driven usury 
out of those countries ; that the power of usury has been broken down, 
not by law, but by competition, which is much more effective than 
if it was a question of law. 

Mr. Hayes. That is the only way to prevent it. 

Mr. Moss. These banks have been very much greater foes to usury 
than all the restrictive laws that might be enacted. 

Mr. Brown. One is a natural restraint and the other is an ar- 
tificial one. 

Mr. Hayes. Yes; one naturally enforces itself, and the other can 
not be enforced against the people who do not want it enforced. 

Mr. Moss. These banks have also had the effect of checking emigra- 
tion from practically every country where these banks have become 
established. And you have only to look over the report of the 
United States Commissioner of Immigration to see that a very small 
proportion of our immigration comes from the countries we are now 
discussing, but nearly all of it comes from the southern countries of 
Europe where these banks and the development of agriculture are 
not well established. There is no question that this system of banks, 
in connection with short-time personal credit, has been one of the 
great factors in checking emigration of those w 7 ho are desirable 
citizens. 

Mr. Hayes. I was just going to suggest that thought. 

Mr. Platt. Is there a difference between northern Italy and 
southern Italy, for instance, in the organization of these banks % 

Mr. Moss. The line of credit in Italy is a question which I myself 
did not study. While I was in Italy I was just taking my first lessons 
in Europe, and was looking around generally over the subject. In 
fact, I went to Italy prejudiced against Italy and its institutions, 
and believing that there was nothing in Italy worthy of study; I 
gave my attention there almost exclusively to personal credits; and 
through a mishap at the last moment, I think, no member of the 
United States commission accompanied the subcommittee of the 
American commission that went through southern Italy to make a 
study of land-mortgage credits. 

Mr. Coulter. None of them went south, but we got practically all 
of those reports. 

Mr. Moss. None of them went south; and I am basing my opinion 
on my personal studies, and therefore I can not answer your question 
as to Italy. 



RUEAL CKEDITS. 123 

These banks have increased the production of European farms. 
There is no question that in this country intelligence is more widely 
diffused than it is among European farmers, and yet, even under 
existing conditions there, they are not only excelling us in produc- 
tion, but the principal thing is that their production has increased 
almost exactly in proportion as this system of rural credits has in- 
creased in those countries. 

The system has given to the European farmers permanent im- 
provements on their farms — I spoke of that a few moments ago — as 
compared with the improvements of American farms. An American 
farmer is surprised at the permanent character of the improvements 
on farms in Europe; when they construct a house or a barn they build 
it for the ages to come, and not merely for the few years to come. It 
has stocked their farms with a very much better quality of live stock 
than the farmers have in this country. No person can go through 
Europe without being struck with the immense superiority of their 
live stock over ours ; and while you might expect to see that superi- 
ority upon the larger and better farms, you will be surprised to find 
to what large extent the high quality of live stock there has ex- 
tended; and I was told that this spread of the best quality of live 
stock has been one of the direct results of and has been almost in 
proportion to the spread of the system of rural credits. 

The system has led to better business methods among the farmers 
of Europe. I spent 10 days out in the country, away from a rail- 
road, among the farmers of Germany, living in one of their homes, 
to which Mr. von Engelken, of Florida, a native of Germany, and 
who can, of course, speak their language perfectly well, introduced 
me. You can go into one of those communities where they have their 
cooperative banks and where they have their mutual life insurance 
companies and will be surprised at what you observe. I was present 
on the day, which occurs once a year, when the stock was to be 
brought up to be reappraised; every horse in that community had to 
be presented to an officer of a farm company to show the exact condi- 
tion it was in. And those farmers can tell you in a moment the 
exact condition of their local bank; and all the way through this 
system of banks had led to better business methods among farmers in 
Europe than you will find among farmers in America. 

It has encouraged cooperation in all lines of rural business. You 
will find in the countries I visited a very much closer cooperation 
among the farmers in business methods than you will find among 
farmers in the United States. It has given birth, as I have said, to 
personal-credit systems. 

And, finally, it has broken up or is breaking up the large estates 
and subdividing them or parceling them out into smaller farms. 
We must remember that Europe inherited certain disabilities from 
its political systems, its feudal systems, and its systems of entailed 
estates. It is overcoming these disabilities by having the power to 
break down entailed estates. It has overcome other disabilities by 
breaking down the feudal systems there and, to some extent, the mon- 
archial institutions. Wherever you go in Europe you will find that 
even the highest officers of the Government are carefully studying the 
question of how to apply this rural credit system and make it reach 
down to the peasant class. This system is, more than any other one 



124 RURAL CREDITS. 

force at the present time, standing between the organized Govern- 
ments of Europe and the absolute control of these Governments by 
socialism. If vou take away this union among farmers in Europe, 
their cooperation along business lines, socialism would sweep over 
Europe at the wit first election. One of the great benefits that 
Government itself is receiving — organized government as against 
socialism: I am not, of course, using the word socialism as referring 
to an overthrow of government; but you will find that the control 
of the Governments of Europe to-day rests upon the solidarity of the 
agricultural classes that have been knit together by this system. 

And, lastly, the system has caused a permanent rural population — 
something that we do not have. By a permanent rural population 
I mean a people who expect to live and die upon the particular farm 
which is their home, and give it to their children, who in turn will 
live and die upon it. 

Mr. Weaver. Right there, is there any tendency in those countries, 
as there is in this country, for the men to get away from the farms 
and into the cities? 

Mr. Moss. Just the same kind of growth of the cities there as 
here. There is no question that the tendency is there; it is ap- 
parently world-wide. It has been checked more in France than it 
has been checked in Germany. But it has been checked in France 
by certain laws more of a social nature than of on economic nature. 
There are three laws recently passed in France which are said to be 
largely of a social purpose or origin. One is the Government loan- 
ing money at 2 per cent interest in small amounts to any person for 
the purpose of buying a farm home. The second is that any person 
living on a farm until he has reached the age of 65 years shall be 
entitled to receive the same pension as if he were a Government 
official ; and the third is that if any person's crop is lost by hail the 
Government itself, without any insurance fee, meets the loss. Those 
three laws were passed by France in order to check the immigration 
into the cities. 

Mr. Weaver. When were they passed? 

Mr. Moss. Just a few years ago. How long was it, Dr. Coulter? 

Mr. Coui/teb. They have hardly gone into effect yet. 

Mr. Moss. I think the one relating to hail has just gone into 
effect. 

Mr. Coulter. Yes. 

Mr. Moss. The minister of agriculture said that, after the Gov- 
ernment of France had pensioned all Government officials when they 
reached the age of 65 years, he noticed some husky boys on farms 
trying to get Government positions in order to be in line for that 
pension. So it suddenly occurred to him that it would be a very 
good thing to give the pension to the man on the farm, so as to take 
that temptation away from the farmers. And so they have pro- 
vided in France that if a man remains on the farm until he is Go 
years old, he shall draw a Government pension to the same degree 
as if he were a Government oflicial. [Laughter.] 

Mr. Seldomridge. What has been the effect on the rural popula- 
tion of Germany of the military conscription program which they 
have? 

Mr. Moss. Upon that question I spoke more with the United 
States consuls than with, any other persons, and I was surprised to 



RURAL CREDITS. 125 

find, without exception, that the United States consuls are in favor 
of enforcing compulsory service in the Army, stating, without ex- 
ception, that the man who was in the Army and came back was a 
better citizen. His army life taught him sanitation; it taught him 
self-control; educated him along broader lines; and that he came 
home a better citizen and a better business man than the person who 
did not go into the Army. 

Mr. Seldomridge. Do these men who go into the Army come back 
to the farm willingly and remain there, or do they seek the cities? 

Mr. Moss. They generally stay on the farm in Germany. In 
France it was noted that when they came back there was more of a 
tendency to go to the city. 

Mr. Seldomeeoge. Let me ask you another question. What is the 
condition of female labor on the farms of Europe? 

Mr. Moss. I think that the general employment of female labor 
on the farms in Europe is the one great blot on European agricul- 
ture. The thing that makes it impossible for an American to go 
there and come away without a feeling of utter disgust is the extent 
to which women work on the farms, the long hours of labor, and the 
hard tasks they are given to do. As a general rule, women do vastly 
more work on agriculture than the men. 

Mr. Seldomridge. Do you think that female labor has been a con- 
tributing factor to the success of German agriculture? 

Mr. Moss. Not at all. It has been a contributing factor to the 
industrial supremacy of Germany, because it has set free a great deal 
of their man labor on the farm and transferred it to the factory. 
You will find in Germany men living 30 miles from the city where 
they work, going back and forth daily. They may live 80 or 40 
miles away from their work. I saw men who lived 6 miles from 
the railroad station ; they rode to the station on wheels and then 
went on the train into the city, worked through the day, and then 
returned to the farm at night. The work on the farm was clone by 
the women, so that where the woman labor has displaced man labor 
on the farm, that condition has increased the industrial output of 
Germany, but it has not made their agriculture more effective. 

Mr. Platt. Have you any evidence that it does the women any 
harm? 

Mr. Moss. Sir? 

Mr. Platt. Have you any evidence that it does the women any 
harm? 

Mr. Moss. Well, I am not a judge of women; I do not care to 
express any opinion in regard to that. 

Now, there are no national difficulties in the way of this bill here. 
We have a great Nation, but the difference between our States and 
between the different sections of our Nation are no greater than the 
differences between different nations in Europe. This sj^stem is 
really a continental system; it is modified a little here and a little 
there, but if you adopt the State as a unit I am certain there are no 
inherent difficulties in our way, because our States do not differ from 
one another more widely in agricultural conditions than do European 
countries. 

And I call your attention to the fact that, in my judgment, this 
legislation should be enacted without any unusual delay. 



126 BUBAL CBEDITS. 

Mr. Woods. Do you know of any European countries which have 
established this system thai do not directly or indirectly grant con 
siderable Government aid? 

Mr. Moss. Oh, yes. 

Mr. Woods. Which ones? 

Mr. Moss. There is very little Government aid given in Hungary; 
very little. In Austria, where they started with two national credit 
institutes, the Government contributed a certain amount of founda- 
tion capital and then a certain other amount was contributed by 
nobles in " foundation shares," but all the foundation shares have 
been repaid and of the Government capital a small amount has not 
been repaid. Theje is no other aid given in Hungary except merely 
the small contribution toward the foundation capital. Is not that 
true, Doctor? 

Mr. Coulter. Yes, sir. 

Mr. Moss. In France the Government contributed $2,000,000 to 
the Credit Foncier at the beginning, in 18G2, and there has been no 
further monetary assistance given, either directly or indirectly, to 
the Credit Foncier since 1850. It has, however, certain privileges, 
which I spoke of as giving to it a monopoly, that were granted bylaw. 

Mr. Platt. How about loans in France? Is there not a consid- 
erable amount the Government loans? 

Mr. Moss. There are Government loans for special governmental 
purposes. I will speak about that in a moment. I am now speaking 
about the Credit Foncier. The vast volume of real-estate loans 
are made from private capital by the Credit Foncier. 

Mr. Bulkley. Does the French Government deposit funds with 
the Credit Foncier? 

Mr. Moss. No, sir. The deposits of the Credit Foncier come 
largely from the system of lottery. They have a drawing that takes 
place, we will say, every six months, or oftener, as the case may be. 
A ticket is really a bond. You buy a ticket, and that is really a bond 
of the same par value as the price of the ticket, repayable, we will 
say, in 75 years, and it bears a low rate of interest, payable semi- 
annually. There is no security given except the good will of the 
bank. Now, then, when the drawings take place, if your particular 
ticket draws a prize, then you surrender your bond at once and get 
a large cash payment ; but there are only one or two w T ho get these 
large cash prizes or bonuses. If you do not draw a prize you would 
have the bond, which is a note of the Credit Foncier, payable in 
about 75 years and drawing interest every six months. It has no 
lottery feature except in that way — not in the sense that you put 
something in and get nothing back. You put something in and you 
may get a great deal back, and you are sure of getting a small rate 
of interest and at the end of 75 years getting your money back. 
And the gambling instinct of the French nation has been so great 
that it has in fact enabled the Credit Foncier to secure the great 
bulk of the savings of the French nation. 

The Credit Foncier emits two distinct classes of obligations to 
secure loanable funds, neither one of which is payable on demand. 
The first class of these obligations represents deposits, and under 
the terms of this bill would be either demand or time deposits. The 
French bank, however, sells lottery tickets. Each ticket is a bond 
or long-time note against the bank, bearing interest payable semi- 



KURAL CREDITS. 127 

annually. The bond itself usually matures 75 years after the date of 
issue. The obligations have no security except that of the good 
will of the bank. In this manner the French bank escapes carrying 
a long line of demand or short-time obligations and can loan its 
deposits very freely on long-time amortization mortgage loans. 
The risk, whatever it may be, is carried by the holders of the lottery 
bonds. 

The second class of obligations is land bonds, similar in every 
feature to the same class 01 obligations issued by the banks under 
the terms of this bill, excepting that the French bank can issue 20 
times its capital and surplus in land bonds, whereas under this bill 
banks are restricted to 15 times. 

The investment of capital and surplus is similar in both instances. 
The capital must be permanently invested in Government bonds, 
short-time real-estate loans, or in promissory securities, which are 
permitted to be rediscounted by the Government bank. 

It is perfectly obvious that the American public would not in- 
vest in such securities as the low-interest, long-time, unsecured lot- 
tery bonds; nor will the moral sense of our people permit the legal 
authorization of the lottery scheme to attract funds even for as 
laudable purpose as the reloaning of these funds for the benefit of 
agricultural development. We have written into this bill every 
commendable feature of the French bank which is well adapted 
to our environments and our national ideals. 

Mr. Woods. What does the Bank of France do with the franchise 
tax? 

Mr. Moss. The Bank of France has to make a certain proportional 
payment of its profits which is based upon the discount rate. As the 
discount rate rises, the percentage rises that it pays over to the min- 
ister of agriculture to be used for the benefit of agriculture, and then 
it is loaned to the regional bank to be reloaned to the farmers in the 
way of personal credits. 

Mr. Seldomridge. Mr. Moss, have you any personal observations 
to make upon the opportunities for investment in Germany, France, 
and Austria in industrial corporation shares or railroad stocks, as 
compared with the opportunities in this country? 

Mr. Moss. No. 

Mr. Seldomridge. Is it not a fact that the savings of the peoph* 
or the money free for investment very largely has to go in real 
estate in order to make a return? Or is there an opportunity in the 
way of stock investments, such as we have in this country? 

Mr. Moss. I am quite sure your observation would not be wholly 
true, by the fact that the German savings bank is one of the greatest 
institutions in all the world. The fact that the savings banks in 
Germany have a deposit of over $4,000,000,000 only illustrates one 
way they invest their savings. 

Mr. Hayes. They do not loan on real estate entirely or largely, 
even ; they loan on bonds and stocks. 

Mr. Moss. Oh, yes; only 20 per cent of these savings funds are 
loaned on rural real estate. 

Mr. Seldomridge. Is there such a market over there for stocks and 
bonds as there is in this country ? 

Mr. Moss. I could not answer that question accurately. Such 
stocks and bonds are quoted in all financial publications. 



128 RURAL CREDITS. 

Mr. Plait. Oh, yes; the German industrial enterprises are financed 
in numerous countries. 

Mr. Hayes. I think France beats all other countries. I think there 
are more industrials financed in France than any other country in 
the world. 

Mr. Platt. I doubt that; I think it is Germany. 

Mr. Hayes. No; I think it is France. 

Mr. Seldomridge. Are they both colonially and locally? 

Mr. Hayes. Both colonially and locally. The people in France 
are the greatest savers in the world and invest their money all over 
the world. 

Mr. Moss. Everywhere I went in Europe they said France is the 
greatest nation to hoard its earnings in the world. Everywhere the 
credit was given to the women of France for this result. 

Mr. Hayes. I have seen them working side by side with their hus- 
bands at all stages of the proposition. 

Mr. Seldomridge. And they have solved the problem of utilizing 
waste to a considerable extent. 

Mr. Moss. Now, gentlemen, I want to speak of a matter that was 
touched on yesterday, in regard to the influences working against 
this legislation. 

Mr. Hayes. Before you leave the subject, Mr. Moss, I want to see 
if I am correct about this: In Germany, where these credit associa- 
tions have reached the highest financial state and where they first 
began, there is no financial Government aid at all. 

Mr. Moss. It is true in regard to land mortgaging. The Raiffeisen 
institutions for personal credit in Germany absolutely refuse Govern- 
ment aid and work against it. There are, however, a large number 
of the personal-credit associations which have been compelled by the 
German Government to be federated together and to accept certain 
Government aid. 

Mr. Hayes. Somebody spoke of the Landschaften and Raiffeisen 
societies. They never have received Government aid and do not 
want it. 

Mr. Moss. That is true. The land-mortgage associations in Ger- 
many are absolutely without Government aid. In Hungary they did 
receive Government aid in order to get started, but nothing to ex- 
tend their operations. In France the Credit Foncier received Gov- 
ernment aid to get started, but nothing after organization. 

Xoav, in Austria you have the country where the land-mortgage 
business is being conducted under Government auspices absolutely. 
It is not under national auspices, but each of the Provinces in Aus- 
tria guarantees the bond and thus gives the local association a mo- 
nopoly. 

When Dr. Coulter coires before you he will speak to you about 
Russia and those countries I did not visit. I think, however, in 
Italy— and. as I say. I did not study their mortgage banks — there 
was a foundation capital given to some of the banks to be loaned on 
mortgages. 

But. in the case of land-mortgage banks and institutions, in no 
sense of the word in continental" Europe has it been generally de- 
veloped or is it being generally sustained by Government aid — abso- 
lutely not. 



SURAL CEEDITS. 129 

Now, if there are any other questions, I am at the service of the 
committee. If not, I am going to speak of some influences which 
have come to my mind working against this legislation. 

First, I am going to call to your attention resolutions which have 
been passed in two States by farmers' congresses and call your atten- 
tion to the important features of such resolutions. 

Here is a resolution passed in Colorado. I will read it complete, 
as I desire to have it in the record : 

Whereas we recognize the great importance and necessity of cooperative effort 

among our farmers ; and 
Whereas we recognize the vast difference in conditions, environment, and tem- 
perament of the European farmers (among whom cooperation has proven so 

successful) and the American farmers; and 
Whereas we believe that cooperation can be more generally employed by the 

American farmers in much of their endeavors to their own advantage and 

the advantage of the consumer as well : Therefore be it 

Resolved, That we heartily indorse all legitimate and conservative means 
toward cooperative effort in the rudimentary branches of their endeavors, cau- 
tioning them at the same time against the risks that would be involved in as- 
suming liability for credit purposes: Therefore be it 

Resolved, That the Colorado Farmers' Congress hereby heartily indorses 
the views and recommendations expressed in the minority report of the Ameri- 
can commission and urges caution in cooperative credit undertaken by the 
farmers, which has as its foundation the mutual liability feature. 

I might call your attention to the fact that at the time that reso- 
lution was adopted the report of the United States commission was 
not public and, so far as I know, the minority report of the Ameri- 
can commission was not public; it was absolutely not available. 
There is no question that the farmers of Colorado or anybody else 
could have known nothing about the views of the minority members 
of the commission, and yet here is a resolution bravely adopted by the 
State indorsing the views of the minority on a proposition that had 
at that time no publicity and which is not yet promulgated, and 
certainly was known probably only to one man in the State of Colo- 
rado at that time. 

Mr. Weaver. Maybe there was a leak through some of the august 
body. 

Mr. Moss. The gentleman I refer to is a very competent banker 
and a student of this subject, but when you come to the question of 
the farmers of the State getting together and adopting these reso- 
lutions they were following one man, a banker of Denver. I do not 
know just what part of this is a rudimentary proposition, and then 
they have heartily indorsed certain views which certainly had no 
publicity at that time and which I am told will now have to be very 
radically changed before the authors themselves will consent to its 
publication. And I think Dr. Coulter will bear me out that he has 
received a request to change the minority report before publication. 

The next resolution comes from the State of Nebraska. It is 
equally interesting: 

We note the recommendation of the President of the United States that 
Congress speedily pass such legislation as shall provide an adequate system 
of credit for the farmer, to be coinrnensurate with the resources and operate 
for the reduction of interest rates to a level with those given to other 
enterprises. 

While this Congress commends the patriotic recommendation of the Presi- 
dent, we believe that the farmers of the country are not yet sufficiently in- 
formed on this subject nor sufficiently represented at Washington to bring to 

37031—14 9 



130 RURAL CREDITS. 

the attention of Congress the information and influence which is being exerted 
by the powerful banking interests toward similar ends. 

We believe tbat the subject of rural credits has its proper foundation in 
the local community and that it is a legitimate subject of State rather than 
of Federal legislation until it has been developed satisfactorily in its prelimi- 
nary stages. 

We therefore express our conviction that Federal legislation upon this sub- 
ject at this time is untimely and may possibly operate to defeat the ends it is 
designed to serve, and we call upon our representatives in the Senate and 
House of Representatives to proceed with due caution and decline to act upon 
such measures as are or may be proposed until they shall have been submitted 
to representative farmers' organizations for their approval or rejection. 

Mr. Platt. It sounds like good Democratic doctrine to me. 

Mr. Weaver. Who were the people that passed that resolution — 
how many? 

Mr. Moss. This was a State farmers' congress of the State of 
Nebraska. 

Mr. Weaver. Of the whole State? When was it passed and 
where ? 

Mr. Moss. I do not know that. 

Mr. Weaver. Some of these meetings will just be simply of a few 
farmers — may be 5 or 6 or a dozen — and they pass resolutions like 
the people of London who said, " We, the people of London," when 
there were only three tailors. 

Mr. Moss. Now, I have no objection to the statement that farmers 
should be represented in Congress. In fact, I have tried to convince 
the people of my district that it was eminently proper to send a 
farmer to Congress. 

Mr. Weaver. And you succeeded in convincing them? 

Mr. Moss. But I will submit to the committee, if this legislation 
be deferred until the farmers in this country have a majority of 
Representatives in Congress — it may be indefinitely postponed. The 
whole matter only shows that resolution was passed and was framed, 
not in the interest of promoting this legislation, but for the purpose 
of defeating it. 

Mr. Platt. Would you say if the Congress was largely composed 
of farmers that the work would be done any better ? 

Mr. Moss. No; I have never believed, gentlemen, in class legisla- 
tion or class representation. I have never seen any reason, however, 
why farmers, as a class, or why a farmer who by natural ability is 
endowed and who has by education fitted himself for the responsi- 
bility — I can see no reason why he should not be sent here as a Repre- 
sentative; and I do not believe the interests of that class or of the 
Nation would be imperiled by the election of such men. I would not 
say the interests of the Nation would be promoted by the election of a 
large body of farmers, as a class, but they certainly would not be 
imperiled. 

Mr. Hayes. Do you not think all classes should be represented ? 

Mr. Moss. Surely. 

Mr. Platt. Do you think a body of farmers would be likely to 
pass any better farm-credit legislation ? 

Mr. Moss. Oh, no. I regret to see that at the present time the 
farmers are not organized and have no effective methods of getting 
together and exchanging views. They pursue their business in isola- 
tion and along individual lines ; and a great many farmers have not 
sufficient business experience to pass on a subject of this kind. 



EURAL CREDITS. 131 

I regret it, but I am going to say that just as surely as this legis- 
lation is enacted, just as surely as any legislation is enacted which 
makes it favorable for cooperation, you will thereby create an interest 
by the farmer in business of the farm. You will find their interest 
in public affairs will grow and their ability to discuss and compre- 
hend public questions will grow, and thev- will have a profoundly 
larger power in shaping public opinion. After all, gentlemen, it is 
public opinion that rules in this country. It is not any particular 
class of citizenship ; it is public opinion. 

Now, I will call your attention to a letter written by a Member of 
Congress upon this subject; and as the chairman has expressed the 
desire that there should not be any individual letters introduced, I 
shall cut out the name and just read the body of the letter into the 
record as showing the proposition. It is written under date of Feb- 
ruary 3, 1914, and reads : 

Replying to your letter just received, suggesting a Nation-wide movement 
among farmers having mortgages on their farms to petition Congress for the 

enactment of my bill (H. R. ) providing for direct loans to the farmers, 

will say I think it an excellent idea, and that if you will carry it out it will 
result in the passage of my bill or one similar to it. 

Permit me to suggest that you have a form of petition printed on separate 
slips, and also in all agricultural papers throughout the Union, reading something 
like this : 

" I , a farm 'owner of your congressional district, urge you to 

support H. R. , creating a genuine rural-credit system and providing for 

the loaning of Treasury notes by the Government direct to the farmers at 2 
per cent interest on gilt-edge real-estate security." 

Mr. Platt. Do you think it is necessary to leave the blank in there ? 

Mr. Weaver. Don't you think they have the rate of interest too 
high? 

Mr. Moss. Now, gentlemen, I have spoken to your chairman, Mr. 
Bulkley, privately, and I want to make the statement publicly to 
the committee that I, acting on my own behalf and, I am certain, 
for every member of the commission, have not any degree of pride of 
authorship in this measure. We have given to this matter the very 
best conscientious study we can give it. We recognized the fact that 
so far as this country was concerned there was no legislative guide 
upon the matter and that we had to pioneer along some lines. We 
are interested in having wholesome legislation on this subject passed, 
and wherever the committee can suggest any improvements in our 
labor, or can in any way make it better or secure additional informa- 
tion, we should be glad to have you do so ; but we would appreciate, 
because I think the country expects it, a prompt report on the sub- 
ject matter treated in our report. As soon as the committee may find 
its way clear to put the matter in official form before the country, 
the sooner you can present your bill so that the people will understand 
it is the bill that is to take the fire of criticism, the quicker the atten- 
tion of the country will be focused on some particular proposition. 

At the present time, I am free to say, this measure the commission 
has created has been the one that has had, of course, this public dis- 
cussion and criticism. If you were to take some of these other bills 
and give them the same publicity, criticism would be directed against 
them ; and, while I do not certainly know it, my opinion is that such 
criticism would probably be fiercer than it has been of this bill. 

Our commission do not believe there is anything in the history of 
the mortgage credit, or anything in the development of it in 



132 RURAL CREDITS. 

Europe, that has stood the test of years that justifies the convic- 
tion that Government aid is necessary or desirable in order to 
introduce the system successfully into the United States. And 
it is not desirable that there shall be any one institution that 
shall have an absolute monopoly of real-estate loans. Real estate 
of itself is one of the very best securities in the world and ought to be 
the foundation investment for the savings of the Nation, in connec- 
tion with Government bonds; and all we can hope of this matter is 
to create a credit system that will standardize loans on real estate and 
make such securities attractive and secure; which will obviate a great 
many of the present difficulties; which will do away with a great 
many of the costs attaching to it now. Its inevitable effect will be 
to standardize this business; it will lower the rates in certain sections 
of the country, draw those sections gradually toward a common level, 
developing their agricultural resources and enriching their farmers; 
and will benefit the whole Nation without damaging any one busi- 
ness. There must be the very closest connection between the city and 
country ; between that section that has accumulated capital and that 
section that needs capital; and I think you will find in the world's 
history that the most successful mortgage institutions are those which 
have been developed as local institutions, whose bonds are taken in 
large part by local investors. And I could not fail to be impressed 
in Europe by the fact that the savings of the city flowed out to assist 
in financing the country, and thus it is that there is a strong com- 
munity interest between the farm and the city. There is no necessity 
of creating any monopoly or favored institution whatever and j t ou 
will avoid it if you will avoid the evil of direct national aid of sub- 
sidizing any one interest in this country at the expense of every other 
interest. 

I believe, unless there are some questions, I have nothing further 
to say upon this subject, 

Mr. Woods. Mr. Chairman, it seems to me that to bring those 
resolutions and that class of matter in in the consideration of a bill 
of this kind brings up a rather serious proposition. I do not know 
of any reason why these agricultural societies or farmers or any 
other class of men or any Congressman should not try to work up a 
campaign for or against any bill. Of course, I believe it is right if 
this bill or any bill before this committee can not stand any criticism, 
we had better go out of business. 

Mr. Bulkley. It seems to me there is no doubt about that; but 
it seems if Mr. Moss receives those things he might also have an 
opportunity to reply to them. 

Mr. Platt. That is true ; but at the same time there is an impres- 
sion we are too timid about being criticized. I take it that is not the 
purpose of Mr. Moss at all. 

Mr. Moss. Air. Chairman, if there is any objection, I ask permis- 
sion to withdraw the resolutions from the record. 

Mr. Plait. I do not object. I do not want them withdrawn from 
the record. 

(After informal discussion.) 

Mr. Seldomridge. Mr. Chairman, I think it is well to show in the 
record these criticisms have not been the outgrowth of great study of 
those measures pending or the one Mr. Moss presented, and really 
do not permit them giving proper consideration to the matter; that 



RURAL CREDITS. 133 

they are not the outgrowth of deliberation, and are really the pre- 
senting of outside suggestions. 

Mr. Hayes. And would not carry conviction to anybody. 

Mr. Woods. And not aimed at this bill even, but are general in 
character. 

Mr. Seldomridge. I have resolutions similar to those presented by 
Mr. Moss, which are directly aimed at this measure, presented by 
this farm-credit commission. They simply say it is the product of 
the bankers' syndicate. 

Mr. Woods. Nobody has a right to say that on the evidence here. 

Mr. Moss. In this connection, as a final word, I feel the commis- 
sion's work ought to be criticized in the most severe sense it can be. 
I feel, however, the criticism ought to be directed to what the com- 
mission recognizes rather than what it does not recognize, just as I 
believe your deliberations and report should be criticized. It is not 
a fair criticism against the commission's work to say that this bill 
is a bankers' bill. There is not a banker on the commission, so far 
as I know. And in my own life and my own connections I have 
not had any connection whatever with any banks. But if I were a 
banker or if there had been a banker on the commission, acting under 
his high sense of responsibility, I am satisfied he would take just 
as patriotic a view as our view of this subject and aim to frame legis- 
lation which would be workable along this line, as much as any other. 
The harshest criticism is in suggesting that some selfish interest is 
trying to gain control of this class of business; that public men are 
being led by those influences, which, I am free to say, are less potent 
now than probably at any other time in this generation. 

The only manner in which bankers can secure business under this 
bill is by loaning money at a lower rate of interest than is now ex- 
tended by the creditor class. That is the purpose of .the bill; not 
to prevent reasonable profits on this class of business, but to encour- 
age the funding of existing debts into lower rates of interest. In 
even 7 such instance the farmer will gain and not the banker. It may 
be that the interest charge will be paid to different money lenders, 
but to the extent that the total charge is reduced the farmer gains 
and the lender loses, as compared with existing conditions. 

I want to thank the committee very much for its kindness and the 
attention which it has given me. I have taken a longer time than I 
intended, but Senator Hollis is responsible for that. 

Senator Hollis. I am very glad to take the responsibility. 

Mr. Moss. I will ask the committee to give Dr. Coulter an oppor- 
tunity to appear and discuss this matter, and I am satisfied you will 
find Dr. Coulter not only extremely well informed on the subject 
and very entertaining but that his contribution will have a very 
high educational value. And if the members have not read the 
report that has been written on this by the United States Commis- 
sion I Avould again ask, before you pass upon this bill, that j 7 ou give 
this report a careful reading. 

Mr. Bulkley. I am sure, Mr. Moss, we all feel very much in- 
debted to you for your instructive presentation. 



WEDNESDAY, FEBRUARY 18, 1914. 

House of Representatives, 

Washington, D. G. 

The committees assembled in joint session at 10.30 o'clock a. m., 
Hon. Robert J. Bulkley presiding. 

Present: Messrs. Brown, Stone, Seldomridge, Weaver, Hayes, 
Woods, and Piatt. 

Present also: Senator Shafroth, of Colorado. 

Mr. Bulkley. Senator Hollis sent word that he is obliged to at- 
tend to some business, but would be present later in the day, if 
possible, and he asked me to preside in his absence. Mr. Moss, you 
may proceed with your statement. 

(The continuation of the statement of Mr. Moss may be found at 
page 103, proceedings of February 17.) 

Mr. Bulkley. Mr. Fischer, we will now hear from you. 

STATEMENT OF GEORGE W. FISCHER, OF REDFIELD, S. DAK., 
SECRETARY OF THE NORTHWEST LAND & HOME BUILDERS' 
UNION, A STOCK CORPORATION. 

Mr. Fischer. I want to say, Mr. Chairman and gentlemen, that 
Federal legislation on rural credits is absolutely the only kind of 
legislation that will be of any benefit to the agriculturists up in our 
country and that the principle of compulsory amortization is the 
key to bringing order out of chaos, as the conditions existing in the 
Northwest are such that legislation of this kind is an absolute 
necessity. 

It is not so much a proposition of low interest rates. What I mean 
by that is 2 or 3 or 3^ per cent. It is a proposition of amortization 
of the principal. I speak from the Northwest standpoint. That 
the amortization should be uniform is most essential, and Federal 
legislation is the one and only way to do this. 

Now, in relation to that, we had in our State a very large perma- 
nent school fund. The law was put into effect in 1892. The loans 
are made on a 6 per cent basis east of the river. What I mean to 
say by that is the Missouri River divides the State. West of the 
river it is 6^ per cent. They are made for five years, and if the 
borrower can not pay that loan he has to pay an extra penalty of 
one-half per cent. 

Now, coming back to the fact that this was started in 1892, the 
conditions are these, as I found them: In our own country, in our 
own county, I should say, GO per cent of these loans have been re- 
newed, some of them as high as three times. West of the river and 
in a certain county there, Sully County, which lies close to the river, 
they run as high as 85 per cent. 
134 



EURAL CREDITS. 135 

Mr. Weaver. Is that the Missouri River ? 

Mr. Fischer. That is on the east side of the Missouri River. The 
west side of the Missouri River is, of course, practically new. We 
are opening no reserve there except the Black Hill. 

Mr. Bulkley. Are those interest rates fixed by statute ? 

Mr. Fischer. Yes, sir. 

Mr. Bulkley. How do you justify the discrimination in favor of 
the land east of the river ? 

Mr. Fischer. It is an older country. They look upon the valua- 
tion of the land there. 

Mr. Hayes. Do I understand those rates are fixed by your legis- 
lature ? 

Mr. Fischer. Yes, sir. 

Mr. Weaver. It is an entirely different character of land? 

Mr. Hayes. It is no wonder they do not have any money out there. 

Mr. Fischer. I want to tell you that is right, too. 

Mr. Platt. Mr. Fischer, you represent this Northwestern Land & 
Home Builders' Association? 

Mr. Fischer. Yes, sir. 

Mr. Platt. And some other associations, did you say ? 

Mr. Fischer. No, sir; I did not say some other associations, but 
I make a great many loans for insurance companies. 

Mr. Platt. Is this Home Builders' Union a large affair? 

Mr. Fischer. Oh, no ; not yet. This was organized on the 8th day 
of June, 1911, and, unfortunately, because of the failure of crops 
for the last three years it has not built up very strong. But what 
there is of it is patterned along the lines of this bill you have before 
you. We are making a successful fight and pay 4 per cent semi- 
annual dividends to our stockholders and do it easily. 

Mr. Platt. It is an incorporated association ? 

Mr. Fischer. Yes, sir. I will go further and say that if you will 
pass this bill, or one similar to it, and it will be put into law, you 
will have done more for the masses, and especially so in raising the 
standard of agriculture and those connected with it, than anything 
else. That the " back to the land " movement will then be a reality 
goes without saying; whereas at the present time it is a farce. 

Now, the question came up here about the farmers leaving the 
land. It is not alone the farmer that leaves the land. He can't 
keep the boys and girls there. 

Mr. Seldomridge. Can he get labor ? 

Mr. Fischer. We get labor when the proper time comes for harvest- 
ing. The railroads bring in an immense crowd of people. They just 
start in Texas, you know, with the harvesting of the crops and they 
keep coming north until they get into Canada. You understand we 
are always 10 days behind as you go farther north. They put in 10 
days in the South, and then they come through Kansas, and then 
they hit Nebraska and then they hit our country, North Dakota, 
which is 10 days later, and then they strike the Canadian country. 

Mr. Seldomridge. Are there any statistics available as to how large 
that army is ? 

Mr. Fischer. That army is a vast army, if you would see it. 

Mr. Weaver. Do you want some of them in Colorado? 



136 RURAL CREDITS. 

Mr. Seldomridge. No; I was just wondering when they are done 
harvesting the crops out in that country if they drift into the cities 
and constitute the population to be fed and to be taken care of which 
makes the so-called "bread line." 

Mr. Hayes. A good many of them take their vacations that way 
in the summer time. 

Mr. Fischer. I want to say this that on the return the cities get 
them. They do not save their money. About 25 per cent of the men 
who come in there will save their money, not any more. The balance 
of them are hunting up saloons or gambling houses, or the red-light 
districts just as fast as they get their monej^; and when they get 
through, why Minneapolis, St. Paul, Chicago, and Omaha get the 
bulk of them. The Chicago, Milwaukee & St. Paul Railroad takes 
them up by the thousands on their freight trains, free of charge, just 
so the farmers can get the help. 

Mr. Platt. Ought not the railroads to be prevented from giving 
free transportation in this way? 

Mr. Fischer. They can not be. There are so many of them, and it 
has caused so much trouble that they finally concluded the easiest 
way out of it would be to let them get into the box cars and go. 

Now, my experience in forming this organization I got from the 
principle of amortization, and the first time I put it into practice 
was on a S7.000 loan on a half section of land. The man who pur- 
chased that half section of land did not have funds sufficient. He 
wanted it, and he was a good man, of good character, and a farmer 
well equipped, and it was good land. Unless I could make a 10-year 
loan with amortization of the principal, $700 each j^ear. he would not 
do it. I sat down and figured that thing out and finally got him to 
purchase. I got the money from the insurance company. After the 
first payment was made they decided that that was a better plan than 
what they were working under, and we get the money right along 
in that way now, outside of what we do not have ourselves. 

Mr. Woods. What was the actual cash value of that farm when 
you made the loan, Mr. Fischer? 

Mr. Fischer. $55 an acre. He had the balance in cash. 

Mr. Weaver. How much did they loan on it ? 

Mr. Fischer. How is that? 

Mr. Weaver. How much did they loan on it ? 

Mr. Fischer. We do not figure that way. We just take it as a 
whole. 

Mr. Weaver. One hundred and sixty acres ? 

Mr. Fischer. Three hundred and twenty acres in this instance. 

Mr. Hayes. It was a little less than $25 an acre ? 

Mr. Fischer. Yes; a little less than $25 an acre, but we do make 
loans as high as $25 an acre on the same basis. 

Now, your proposition in this bill of a special reserve for interest 
rates, for the interest, is very appropriate, especially up in our coun- 
try where failures of crops are more in evidence than good, big, large 
crops, making it impossible for a man to pay his interest in those 
years. That is, they manage to get it but it crowds them. They 
must deny themselves of a lot of comforts around the house in order 
to do it. 



BUBAL CBEDITS. 137 

Now, the question of personal credit, we think — that is, our directors 
there — will adjust itself to these conditions if once put into effect. 
You won't have any trouble. The way we do that — here is a man 
who has a $2,500 loan; when he comes around in the spring and in 
the fall and needs a little money we loan him up to 10 per cent of the 
amount of his loan that we have on the land and give him three 
months' time to pay it in. If he is not able to pay it at that time — 
the whole thing — he pays 20 per cent, and we extend another three 
months, and so on; just making it the whole year as it is now. It 
gives him the opportunity to pay it ; and they do pay it if you give 
it to them in the right way. 

Mr. Woods. How about the renter? What rates does he pay — ■ 
the man who does not own any land ? 

Mr. Fischer. Oh, my ! That poor fellow gets skinned from one 
end to the other. The same way with the homesteader. Sixty per 
cent of the homesteaders lose their land, whereas 99 per cent of them 
come there with good intentions to make it their future homes. The 
little banker follows right in the wake just as soon as the lands are 
open. He does not loan any more than enough to prove up the land 
when the proper time comes, and if they have got any personal prop- 
erty he will keep feeding them $25 or $50 until he gets that ; and then 
the fellow walks out, or rides out if he has got anything to ride out 
in. That is the condition there. Our lowest interest rate we get 
now east of the river is 6 per cent, and that is due to the life insurance 
companies beginning to put in their money there. They are the real 
factors that brought down the interest rates on the east side of the 
river, but they give the fellow on the west of the river no chance. 
They do not go over there. 

Now, to show this committee I brought along some of the tables. 
Now, the 1 per cent on all unpaid balances — we do that differently. 
The expense feature there is figured at $5 a year. You see, here is 
a 20-year $1,000 loan [exhibiting paper] ; here is the principle amor- 
tized; here is the interest; here is the expense; and here is the first 
payment; and here is the last payment [indicating]. 

Mr. Hayes. What do you figure for expense ? 

Mr. Fischer. Five dollars a j^ear. 

Mr. Hates. That is a half of 1 per cent ? 

Mr. Fischer. Half of 1 per cent ; yes. 

Mr. Platt. What did you say the rate was west of the Missouri 
River? 

Mr. Fischer. It is as high as 20 per cent. 

Mr. Platt. You said something about your school fund being 
loaned ? 

Mr. Fischer. The school funds — if our State legislature would 
have enacted legislation along the lines you people are proposing 
now for the whole United States, why our west of the river people 
would be in far better shape than they are now ; they could stay on 
their homesteads. But, as it is, they have to get off, and then the 
other fellow comes. 



138 



RURAL CEEDITS. 



(The table of payments above referred to by Mr. Fischer is as 
follows:) 

[$1,000 loan for 20 years at 6 per cent] 



First year 

Second year 

Third year 

Fourtli year 

Fifth year 

Sixth year 

Seventh year 

Eighth y'ear 

Ninth year 

Tenth year 

Eleventh year 

Twelfth year 

Thirteenth year.. 
Fourteenth year . 
Fifteenth year. .. 
Sixteenth year . . . 
Seventeenth year 
Eighteenth year.. 
Nineteenth year. . 
Twentieth year . . 



Principal. 



$50 
50 
50 
50 
50 
50 
50 

.50 
50 
50 
50 
50 
50 
50 
50 
50 
50 
50 
50 
50 



1,000 



Interest. 



$60 
57 
54 
51 
48 
45 
42 
39 
36 
33 
30 
27 
24 
21 
18 
15 
12 
9 



640 



Expense. 



Total. 



$115 
112 
109 
106 
103 
100 
97 
94 
91 
88 
85 
82 
79 
76 
73 
70 
67 
64 
61 
58 



100 



1,740 



Principal, $1,000; interest, $640; expenses, $100; total, $1,740. 



Mr. Fischer. Now, here is a 15-year loan. There is a 7 per cent 
rate [exhibiting slip]. 

(The paper referred to is as follows:) 



1,000 loan for 15 years at 7 per cent.] 





Principal. 


Interest. 


Expenses. 


Total. 




$66. 67 
66.67 
66. 67 
66.67 
66.67 
66.67 
66.67 
66.67 
06.67 
66.67 
66.67 
66.67 
66.67 
66.67 
66.62 


$70.00 
65.34 
60.66 
55.99 
51. 32 
46. 65 
41.98 
37.31 
32.64 
27.97 
23. 30 
IS. 63 
13.96 
9.29 
4.63 


$5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 
5.00 


$141.67 




137. 01 




132. 33 




127. 66 




122. 99 




IIS. 32 




113.65 




108.98 




104. 31 




99.64 




94.97 




90.30 




85.63 




SO 96 




76.25 






• 


1,000.00 


559. 66 


75.00 


1, 634. 66 



Principal, $1,000; interest, $559.66; expenses, $75; total, $1,634.66. 

Mr. Hayes. In these figures that you give here, the initial pay- 
ment is much larger? 

Mr. Fischer. The initial payment is higher. 

Mr. Hayes. You do not divide it equally? 

Mr. Fischer. No, sir. You see, the idea was to give that man a 
chance — to make it easier for him every year. 

Senator Hollis. Is it done for that purpose, Mr. Fischer, or was it 
done so that your first payment would make the loan safe, so you 
could loan more money? 

Mr. Fischer. The idea was this was to give that fellow a chance 
on personal credits, too. We do not loan over 60 per cent of the valu- 
ation of the land and 40 per cent of the buildings, combining the two; 



RURAL CREDITS. 



139 



and just as fast as he makes a principal payment you are in just as 
good shape to lend him on his personal credit, as you have everything 
he has, anyhow. 

Senator Hollis. And do you do that sometimes — loan him on his 
personal credit? 

Mr. Fischer. We are doing that right along. 

The only salvation that country is ever going to have is diversified 
conditions of farming, and they are doing that in the past five years. 

Now, here is our 10-year table [exhibiting slip]. 

(The slip referred to is as follows:) 



Our rural-credit plan. 

[Loan of $1,000 for 10 years.] 

[Loan of $1,000 for 10 years.] 



Principal. 


Interest. 


Expenses. 


$100 


$80 


$5 


100 


72 


5 


100 


64 


5 


100 


56 


5 


100 


48 


5 


100 


40 


5 


100 


32 


5 


100 


24 


5 


100 


16 


5 


100 


8 


5 


1,000 


440 


50 



Total. 



First year... 
Second year. 
Third year... 
Fourth year.. 

Fifth year 

Sixth "year . . . 
Seventh year 
Eighth year. . 
Ninth year. . 
Tenth year. . . 



$185 
177 
169 
161 
153 
145 
137 
129 
121 
113 



1,490 



Principal, $1,000; interest, $440; expenses, $50; total, $1,490. 

Average rate of interest, $44 per year, or 4.4 per cent, or 4.9 per cent counting in the expense money— less 
than 5 per cent. 

Senator Hollis asked me the other day how we got our money. 
We sell three savings contracts, built on the expectancy table of 
life-insurance companies, the same tables that all life-insurance com- 
panies now use. Our contract called " class B " we sell at $6.25 a 
month for 10 years. It matures for $1,000 at that time. We take 
75 cents out of that for expenses. 

Senator Hollis. That is, Mr. Fischer, as I understand it, you 
have adopted the endowment feature of insurance, cutting out the 
death part? 

Mr. Fischer. That is it exactly. 

Senator Hollis. That is a pure endowment plan without any 
modifications ? 

Mr. Fischer. No modifications except in so far as if the owner of 
that contract dies they get what has been paid into that loaning fund 
plus 6 per cent for the average time. 

Senator Hollis. I am glad you mentioned that, because I did not 
get that the other day. 

Mr. Hayes. You charge a higher interest on the 10-year plan 
than you do under the 20-year plan? 

Mr. Fischer. Yes. I am just showing you the rates of interest. 
On the 10-year loan we make a higher rate of interest. 

Mr. Hayes. That makes it harder for the 10-year man ? 

Mr. Fischer. That is the only way it will help them. We had to 
educate our people to this proposition. They did not grasp it, but 
now as it is going they prefer the 20-year loan, which is also lower 
than the 10. 



140 RURAL CREDITS. 

I also have a table we expect to use on a 40-year plan, applying 
your 1 per cent of this bill on all unpaid balances. You see that 
shows the payments to be made on a 40-year plan. [Exhibiting slip.] 

(The paper referred to is as follows:) 

Loan of $1,000. and the payments to be made each year by the borrower: 

First year $75. 00 

Second year 73. 75 

Third year 72.50 

Fourth year 71. 25 

Fifth year 70. O0 

Sixth year G8. 75 

Seventh year 67. 50 

Eighth year 66. 25 

Ninth year 65. 00 

Tenth year 63. 75 

Eleventh year 62. 50 

Twelfth year 61. 25 

Thirteenth year 60. 00 

Fourteenth year 58. 75 

Fifteenth year 57. 50 

Sixteenth year 56. 25 

Seventeenth year 55. 00 

Eighteenth year 53. 75 

Nineteenth year 52. 50 

Twentieth year 1 51. 25 

Twenty-first year 50. 00 

Twenty-secGnd year 48. 75 

Twenty-third year 47. 50 

Twenty-fourth year 46. 25 

Twenty-fifth year 45. 00 

Twenty-sixth year 43. 75 

Twenty-seventh year 42. 50 

Twenty-eighth year 41. 25 

Twenty-ninth year 40. 00 

Thirtieth year 38. 75 

Thirty-first year 37. 50 

Thirty-second year 36. 25 

Thirty-third year 35. 00 

Thirty-fourth year 33. 75 

Thirty-fifth year 32. 50 

Thirty-sixth year 31. 25 

Thirty-seventh year 30. 00 

Thirty-eighth year 28. 75 

Thirty-ninth year 27. 50 

And the 40th year, the last year of payment, the amount is $20.25. and the 
loan is completely wiped out. 

Senator Hollis. Now, explain just what that 1 per cent is you 
refer to. generally, Mr. Fisher. 

Mr. Fischer. That is for the expense, the administration expense. 

Senator Hollis. And is it your experience that that 1 per cent is 
sufficient \ 

Mr. Fischer. Yes, sir; it is a plenty. 

Senator Hollis. Therefore the 1 per cent in the bill before the 
committee you think is enough? 

Mr. Fischer. It is correct. Yon will be able to reduce this in 
years to come. Competition will do that, just as Congressman Moss 
has said here. 

Mr. Seldomridge. Your interest amounts, in 10 years, to almost 
the rate of 1\ per cent a year? 



EURAL CREDITS. 141 

Mr. Fischer. With the amortization feature on the 40-year plan it 
is just 74 per cent. On the 20-year plan here it calls for a trifle more. 
The people do not object so much to the interest rates if they can get 
the amortization of the principal and can reduce their payments each 
year. That is the feature. 

Mr. Seldomridge. If they were borrowing money without that 
plan, what would they have to pay? 

Mr. Fischer. They would have to pay a straight 6 and 10, and for 
periods of three to five years. While the fellow prospers it is all 
right, but just about the year he has got to pay that principal along 
comes a failure of crops, and there he is ; and if they have him, they 
want the money. Now, he has got to get down and beg, and the 
result is he pays an extra commission. 

Mr. Seldomridge. He saves all those extra charges under your 
plan ? 

Mr. Fischer. He saves extra commissions with us, and he saves 
all of those extra charges. 

Senator Hollis. Mr. Fischer, if this bill goes through, or a bill 
similar to it, is it your intention to organize a bank? 

Mr. Fischer. It is our intention, just as soon as ever it does, and 
our desire — just as soon as ever this bill is passed and put into effect 
we want to be the first bank of that kind in the country. 

Senator Hollis. You think you and your friends will probably 
organize more than one? 

Mr. Fischer. I do not know as to that. They are mostly insurance 
men that are connected up with this. It took a long while for us to 
get them to catch the idea. 

Senator Hollis. Have you familiarized yourself with the commis- 
sion bill sufficiently to offer any criticisms on it? 

Mr. Fischer. I can not find any criticism. The only criticism I 
can find is that the homesteader is not taken into this bill, the very 
fellow that needs it the most. Now, here is a young man or a young 
woman going out here on the plains. You gentlemen have probably 
watched this thing, but not as much as we do out there, or I have. 
Here comes an army of people into Aberdeen when they opened up 
Standing Bock Reservation — thousands of them, from the age of 21 
clean up to 80, you will find people — and they want that home, and 
they expect to make it their home. But there is no way of those 
people keeping that if they have not $2,500 to carry them through 
for the 14 months. That is the idea. Now, our idea was that there 
might be a feature put into this bill. Here is a man going out there, 
or a woman, and they break 10 acres of land. Mind you, the Govern- 
ment owns this land. The homesteader does not own it until he has 
proved it up. Now, he breaks 10 acres, as required. That costs him 
$50. He ought to have a credit somewhere for $25, so that he could 
proceed again. It would be an encouragement to go farther; and, as 
he improves this farm, let him have a 50 per cent credit from those 
banks or some other source. 

Now, we do not believe in direct loans; I mean the loaning of 
money direct by the Government to the farmer. That is absolutely 
no good at all. It would kill your farming industry, in my individual 
opinion. 

Mr. Hayes. And the country, too? 



142 RURAL CREDITS. 

Mr. Fischer. Yes. 

Mr. Platt. Do you think it is wise, Mr. Fischer, to start a man out 
on a farm who has not got a cent saved up ? 

Mr. Fischeb. Oh, well, now, he has got to have the $16 to make his 
filing, you understand, or the $14. They usually have anywhere from 
$100 up. About 15 per cent of the people have sufficient to carry 
thorn through, but the balance have not, and then they have got to 
borrow. When the 14 months are up, 70 per cent must borrow the 
money to prove up. 

Mr. Platt. Are they all farmers? 

Mr. Fischer. They are just like the fellows that struck our country 
when I came there 27 years ago. Like myself, they did not know a 
darn thing about farming. 

Mr. Platt. That is the reason why they fail ? 

Mr. Fischer. No ; that is not the reason why they fail. That would 
be no reason why our fellows failed. A good many of them are 
there yet. 

Mr. Platt. Do you think the average man who does not know a 
" darn " thing about farming can go on a farm and make a success 
of it? 

Mr. Fischer. I saw a good many up there in my country do it. 
Now, I did not go ; and I will tell you the reason why I did not go. 
I was not tall enough to harness a horse. That is the only reason I 
did not go on one of those homesteads, and at that time when they 
could take three claims. And after I sat down and figured it out I 
was not a bit sorry I did not go there. 

Senator Hollis. I was going to ask, Mr. Fischer, if you thought 
it was practicable for us to take care of the homesteader in a bill of 
this kind, knowing as we do that the homesteader does not own the 
land? 

Mr. Fischer. Yes; with the Government owning the land I think 
it is very practicable ; and you can make it so, too. 

Senator Hollis. Will you work out something along that line 
and send it to us within a week or two, so we can look it over ? 

Mr. Fischer. I will not promise within a week or two, because I 
do not expect to get back within that time. 

Mr. Weaver. We want it as soon as we can get it, because, while 
we want to hold full hearings, it is our desire to get to work on a 
bill as soon as possible. 

Mr. Seldomridge. Let me say in that connection, I represent a 
constituency that is very vitally interested in this matter of taking 
care of the homesteader, and we have been face to face with problems 
in my section that are just as equally acute and require as much 
thought and consideration as those presented by Mr. Fischer; and I 
will welcome any suggestion that he or anyone else could offer 
whereby the interests of those people can be lawfully conserved in 
this legislation. 

Mr. Fischer. My reason for saying that the thing is practicable 
is this : When you open up a new country to-day, you appraise the 
land. You put a fixed price on that. Do they do that in your 
country ? 

Mr. Seldomridge. I beg your pardon ? 



RURAL CREDITS. 143 

Mr. Fischer. The Government appraises the land before the man 
can file his homestead entry to-day, you see, under existing laws. 
J)o they do that in your country? 

Mr. Seldomridge. I do not think that is done in Colorado. 

Mr. Hayes. If they open up a reservation, I think it is. 

Mr. Seldomridge. There is no reservation in our State. 

Mr. Weaver. Not any Indian reservations at all ? 

Mr. Seldomridge. No. 

Mr. Fischer. When you do that you put a fixed value on the land. 
Now, that man as a matter of fact ought to have a personal credit 
of the amount of that price per acre that the Government puts on it. 
That is the way we look on it. 

Mr. Platt. Why should not the Government sell the lands out- 
right and abolish the whole homestead business. Is not that the 
best way? 

Mr. Seldomridge. I am in favor of that myself. 

Mr. Fischer. The hunger for land for the homesteaders is greater 
to-day than it ever was, in my estimation. 

Mr. Platt. That is for purely speculative purposes? 

Mr. Fischer. No. 

Mr. Platt. They simply take up the lands to sell again at a higher 
price and go on to others? 

Mr. Fischer. The speculator is the man that loans them 75 per 
cent. 

Mr. Platt. He would not take those risks if he did not expect to 
speculate on the value of the land? 

Mr. Fischer. The speculator comes in after the banker crowd. 
After they get about 60 per cent, and they are all united on the 
proposition, then they can boost the land and can sell it for $20 or $25 
an acre. 

Mr. Seldomridge. And then some blackmailer comes along and 
contests the filing and it takes six or eight months to get a decision, 
or even longer. 

Mr. Platt. The Government would get more money and the people 
would be better satisfied if you stopped the whole business. 

Mr. Brown. And sell direct? 

Mr. Seldomridge. On long time ? 

Mr. Hayes. Sell on long time ; that would be all right. 

Mr. Weaver. They sold agricultural lands in Texas on 40 years' 
time. 

Mr. Fischer. I know you do, and so they do in Minnesota — sell 
their agricultural lands on 40 years' time — and I guess there are 
three States in the Union which do that. 

Now, Wisconsin has established a long-time farm-loan credit sys- 
tem. I have here the text of the bill, and I notice in Marionette. 
Wis., they have organized the first association of its kind. When t 
leave here and go West again I was going to stop there. But the 
States won't adopt this thing. Wisconsin might and Oklahoma 
might, in my estimation ; but if you take the rest of them the bank- 
ers control your legislation, and anything that tends to lowering the 
rate of interest they do not want. 

Mr. Hayes. I am afraid they do not in some States, brother. 

Mr. Fischer. I do not say that, except in our Western States. 



144 RURAL CREDITS. 

Mr. Hayes. They do not in California. 

Mr. Fischer. Don't they? 

Mr. Hayes. No, sir. 

Mr. Fischer. Well, they do with us. 

Mr. Weaver. The railroads, I am told, have control of what rates 
are charged in California. 

Mr. Hayes. They have not had for some years. If there is any 
State in the Union that is free from domination by railroads or other 
corporations, I think it is California to-day. 

Mr. Weaver. I would not make any reflection on a State without 
having actual knowledge. 

Mr. Fischer. We are free from railroad domination. 

Mr. Hayes. I was one of the pioneers in that fight in 1898. 

Mr. Fischer. The bankers, or the banking fraternity, as we call 
them, and the lawyers — they do. Now, that is no reflection on you 
gentlemen; but, nevertheless, it is a fact that there are three classes 
in our State that have practically beat the good legislation. This 
banking fraternity and the legal fraternity, they put in themselves. 
They have put in one officer after the other one. Right in our 
county there are 15, and through manipulation in the legislature 
there are five of those fellows — and we cast a vote of 3,500 in that 
county — that hold five of the public offices. 

Mr. Bulkley. Mr. Fischer, would it be convenient for you to 
come back to-morrow morning? 

Mr. Fischer. Yes; I am at the convenience of the committee. 

Mr. Bulkley. Then we will adjourn at this time until 10.30 o'clock 
to-morrow morning, to meet in this room. 

(Thereupon, at 1.10 o'clock p. m.. the committee adjourned until 
to-morrow, Thursday, February 19, 1914, at 10.30 o'clock a. m.) 

(The following additional statement of Mr. Fischer was made at 
the session of the committee on February 19, 1914, but is placed at 
this point to preserve the continuity of his argument:) 

STATEMENT OF GEORGE W. FISCHER, OF REDFIELD, S. DAK.— 

Continued. 

Mr. Fischer. I want to submit the figures of the Spectator's com- 
pound-interest table, showing the amount of money that must be 
invested annually at compound interest to amount to $1,000 in a 
definite number of years. On the reverse side of the sheet are our 
plans for making loans, giving the party the choice on city property 
of anywhere from 10 years to 30 years in which to repay. 

Mr. Bulkley. Do you want to put those tables in the record. Mr. 
Fischer ? 

Mr. Fischer. I do not care particularly about that. I just wanted 
the members of the committee to see how that plan worked. 

Mr. Brown. I think it would be a good thing to have that incor- 
porated in the record, Mr. Chairman. 

Mr. Fischer. This shows how the plans worked out. 

Mr. Brown. It shows how much a year a man has to pay under 
the plan. 

Mr. Bulkley. The tables will be inserted in the record at this 
point. 



RURAL CREDITS. 

(The tables referred to are as follows:) 

COMPOUND INTEREST TABLE. 



145 



The following table shows the amount of money that must be invested annu- 
ally, at compound interest, to amount to $1,000 in a definite number of years : 



Length of time invested. 



10 years 
15 years 
20 years 
25 years. 
30 years. 
35 years. 



At 4 


At4§ 


At 5 


At 6 


At 7 


At 8 


per cent. 


per cent. 


per cent. 


per cent. 


per cent. 


per cent. 


$80. 09 


$77. 88 


$75. 72 


$71.57 


$67.64 


$63. 92 


48.02 


46.04 


44.14 


40.53 


37.19 


34.10 


32.29 


30.50 


28.80 


2.5. 65 


22.80 


20.23 


23.09 


21.47 


19.96 


17.20 


14.78 


12.67 


17.14 


15.69 


14.34 


11.93 


9.89 


9.17 


12.06 


11.74 


10.55 


8.47 


6.47 


6.76 



Amount 
to— 



$1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 
1,000.00 



A $1,000 loan costs you, on the 10-year plan, $162 per annum, or $13.50 per 
month ; on the 15-year plan, $132 per annum, or $11 per month ; on the 20-year 
plan, $120 per annum, or $10 per month ; on the 25-year plan, $108 per annum, 
or $9 per month ; on the 30-year plan, $102 per annum, or $8.50 per month. 

Loans made on farms, payment is made annually. 

Loans made on city property, payment is made monthly. 

Privilege is given to pay any indebtedness at any time after the tenth year, 
subject to six months' notice. 

No commissions charged on loans of $1,000 and over. 

Mr. Fischer. I would like to say, Mr. Chairman, that the farm 
papers and the cooperative magazines have done a great deal to edu- 
cate people along those lines. We have also now the farm experts; 
they are doing a lot of good; each county has its own expert. But 
the great bulk of the people are so deeply in debt, and at such high 
interest rates, that their minds are not in a condition to receive the 
teachings of these people. Consequently, intensive farming is not 
being done and can not be done until you pass a measure of this kind 
to relieve the situation. 

Senator Hollis. What do you mean, that the farmers have not the 
means to do it with, or that they are so loaded down with debt that 
they are discouraged? 

Mr. Fischex. Their minds are burdened with this debt so that they 
can not give the attention to it, and instead of imbibing the teachings 
of these men their minds are absorbed in what they have got to pay. 

Mr. Bulkley. Is that because of a fear that they will be fore- 
closed and put out of their farms? 

Mr. Fischer. Yes, sir. Now, that is the condition that confronts 
us, with a large percentage of the people. I do net want the com- 
mittee to understand, of course, that we are all poor out there. 
There are some men that have made a grand success of it, and as was 
said here yesterday, the homesteader who went out on those lands 
and went into that country about the time that I did, while he did 
not know anything about farming, is the successful man there to-day, 
the man who held out. If there are any questions the committee de- 
sire to ask, I will be glad to answer them. 

Senator Hollis. As I understand it, Mr. Fischer, you make these 
attractive loans to the farmers who have this security, and whom 
you consider honest and enterprising, and then you sell the loans to 
the insurance companies? 

Mr. Fischer. Yes, sir ; that is the way we do. 



37031—14- 



-10 



146 RURAL CREDITS. 

Senator Hollis. So that your system corresponds very closely 
with what we want to do? 

Mr. Fischer. Yes. 

Senator Hollis. That is, we want to establish a bank that will 
make attractive loans to farmers on favorable terms, and then will 
make those loans the basis of bonds to be sold to investors — and the 
investors are the insurance companies in your case. And you have 
actually tried it and found that it works well on a small scale with 
you; so that you think if you could incorporate a bank under the 
terms of a bill like the one now under consideration, you could do a 
larger business and have a better standing, because you would have 
the national banking laws behind you; is that j^our position? 

Mr. Fischer. That is my position exactly. It brings the relief 
under this bill that our people need. 

Mr. Bulkley. Do you feel satisfied with this Fletcher-Moss bill? 

Mr. Fischer. I certainly do, so far as I am personally concerned; 
and the gentlemen who are connected with me do also. You can not 
effect everything. Of course, as I said yesterday, we would like to 
see the homesteader taken in. but I can not conceive of anyway by 
which you can do it. 

Mr. Bulkley. I wish you would tell us about the operation of 
that school fund which is loaned directly to the farmers in your 
State. 

Mr. Fischer. We have the best opportunity there in that State 
to do what you are trying to do in a national way ; they could have 
done it in a State way, but they did not do it. Just as I said yester- 
day, the moment the matter of interest rate comes up, or a reduction 
of interest rates, the banking committee sees that that thing is 
pigeonholed and does not come out of the committee. 

Mr. Bulkley. They lend State funds at 6 or 6^ per cent, and 
that is lower than the market rate, is it not? 

Mr. Fischer. Well, that helps to keep the interest rate down. 
But land is going up ; it is higher priced ; the mortgage indebtedness 
grows larger, and consequently there is not enough to go around; 
and these fellows that had it — as I said, in my county 60 per cent 
of those that started to borrow and have borrowed since 1892 — have 
to renew. Fifty miles west of us, in Sully County, it is up to 85 
per cent. 

Senator Hollis. And what percentage of the mortgages are fore- 
closed ? 

Mr. Fischer. As far as the percentage of foreclosures is concerned, 
I have not the figures with me, but I can tell you in this way : Last 
fall the Rapid City Guide, which is one of our Black Hill papers — 
that is right on the edge of the big reservation — I picked that up 
in a hotel, and there were 26 foreclosures in that issue of that paper. 

Senator Hollis. You mean there were that number of foreclosures 
advertised, do you not? 

Mr. Fischer. Yes, sir: advertised; and none of them were for 
over $250, and the majority of them were for about $100. 

Mr. Bulkley. Are those school-fund loans? 

Mr. Fischer. No: that was where the banks were following up 
these homesteads. They get these lands for practically nothing in 
that way. 



RURAL CREDITS. 147 

Senator Hollis. That is, they loan a small amount of money on 
the farm and foreclose the mortgage, and the man's equity is wiped 
out and the redemption lapses, and then they own the land? 

Mr. Fischer. Yes; and then they own the land. 

Senator Hollis. And they get it very cheaply. And that is part 
of their policy, as you understand, to give these small loans and 
make a foreclosure, and in that way steal the lands; is that correct? 

Mr. Fischer. Conditions show that that is true. They practically 
do steal the land. If there is a way to help that homesteader as this 
Government helps the Indian on that same reservation it should be 
done. 

Mr. Bulkley. Is there any favoritism in passing on applications 
for loans from the school fund? 

Mr. Fischer. Oh, well, you can not say that. It is done by the 
various counties, the various county commissioners. I would not 
accuse anyone, so far as favoritism is concerned ; I would not think 
of that. 

Mr. Bulkley. Have there been any complaints along that line? 

Mr. Fischer. The complaints are along the line that there is not 
enough money. 

Mr. Platt. That is a pretty universal complaint, is it not ? 

Mr. Fischer. Yes. You see, the rate east of the Missouri River is 
6 per cent ; the length of time is 5 years. If you do not pay it — and 
you pay this interest in advance — but if you can not pay that loan, 
one-half of 1 per cent penalty is added by the State itself, on its own 
taxpayers, who, not through any fault of their own, have lost out and 
could not pay on account of climatic conditions or sickness 

Mr. Brown. Or failure of crops ? 

Mr. Fischer. Yes; failure of crops. West of the Missouri River 
they charge 6| per cent, and the farmer is in a still worse condition 
than the one east of the river; and if he is prevented by climatic con- 
ditions or by sickness from paying when due, he is screwed up another 
one-half of 1 per cent penalty. 

Mr. Platt. Does the State ever foreclose those mortgages? 

Mr. Fischer. They have not yet ; but the time is coming when they 
will. They do not dare to do so now, as that would raise an awful 
howl. 

Mr. Platt. Are the mortgagors behind on their interest ? 

Mr. Fischer. They are. 

Mr. Platt. That is an example of Government loans direct. 

Senator Hollis. I suppose your crop failures result from drought, 
do they not? 

Mr. Fischer. Yes; generally. 

Senator Hollis. And you have had two or three bad years ? 

Mr. Fischer. Yes; they just happened to have two or three bad 
years. 

Senator Hollis. Yes. 

Mr. Fischer. But instead of adding a penalty, they might havs 
done it in some other way. 

Mr. Platt. By foreclosure, for instance ? 

Mr. Fischer. No ; what I mean to say by that is, not by foreclosure, 
but they ought to give these people a better layout and not add tha J . 
penalty. It is hard enough not to be able to pay the interest ; but 
when you add on top of that the penalty, that makes it worse. 



148 RURAL CREDITS. 

Mr. Platt. Are not some of the people who borrow this State 
money men who have had no experience in farming? 

Mr. Fischer. No. I will tell you there are very few of them who 
get the State money who have had no experience in farming; the 
State looks out for that. They have some very strong applications, 
just the same as we have. Now, for instance, a man makes an appli- 
cation with us ; he has to tell the State what that money is going to be 
used for, and he has got to swear to it before a notary public. 

Senator Hollis. Now, what do you think of that feature? Do you 
think that is a useful or a harmful feature? 

Mr. Fischer. Do you mean where they must state the purpose in 
the application? 

Senator Hollis. Yes; making the applicant state what he wants 
the money for ? 

Mr. Fischer. I think that is the very thing that ought to be done. 

Mr. Platt. Do they always use the money for the purposes stated? 

Mr. Fischer. They certainly come pretty near doing so. Ninety- 
nine per cent of them do, because they could not come back and get 
any more money if they did not. 

Mr. Bulkley. Mr. Fischer, in the light of your experience in 
South Dakota of loans of school funds by the State direct to the 
farmer, what are your objections to direct Government loans? 

Mr. Fischer. Well, I certainly object. I can not express it any 
better. I know that it is a failure. 

Mr. Bulkley. "Well, in what respect is it a failure ? 

Mr. Fischer. For instance, there are many people who can not 
be supplied; there is not enough of the money to supply them all; 
of course, it is growing all the time, getting larger. 

Mr. Bulkley. That is not a very fundamental objection; if the 
United States Government went into the business, you would not 
doubt that it would have enough money for them all, would you? 

Mr. Fischer. I do not doubt that; but I would much prefer to do 
it through private means with Government supervision. Our State, 
of course, could not do that. As you have this bill drawn, in my 
estimation, and as far as our State is concerned, it will fill the re- 
quirements. 

Mr. Bulkley. I understand; but we have a number of Members of 
Congress who are urging direct Government loans, and I would like 
to hear what specific objections there are to that. 

Mr. Fischer. I had not any specific objections, only I know that 
this is a better proposition to do it this way than in that wa} r . 

Mr. Bulkley. Well, is there not something in your South Dakota 
experience that would throw more light on that, and show us just 
why the direct-loan plan is a failure '. 

Mr. Fischer. Well, we have not had experience enough in that, 
so far as I am concerned, for me to give any idea upon it. Now, 
I do not want to say that it is a failure ; I do not want to be misunder- 
stood; I say it has been a vast help, the same as it has been a help 
for the life insurance companies' money to come in there in the 
past six or seven years. It has helped the people. 

Mr. Platt. Does the State, in lending its money, always give as 
much attention to the matter of security as the life insurance com- 
panies do, for instance? 



RURAL CREDITS. 149 

Mr. Fischer. They certainly do. 

Mr. Platt. The State loans are all good, are they ? 

Mr. Fischer. I should certainly call 95 per cent of them as good 
as any life incurance company's. There are restrictions placed around 
the loan to such an extent that there is no loss there, or if there was 
any, it would be a minimum. 

Mr. Platt. The State is losing interest on a lot of them, is it not? 

Mr. Fischer. I would not say it was losing interest on them ; they 
have simply got to carry these men. 

Mr. Platt. But they are losing the interest now ? 

Mr. Fischer. They are losing the interest now, but eventually the 
man will have to pay it or deed his land over to the State. 

Senator Hollis. Mr. Fischer, there are a great many applications 
for the State loans, are there not? 

Mr. Fischer. Yes, sir. 

Senator Hollis. Therefore the State is enabled to select only the 
very best ones, and therefore there would be no excuse for it not to 
have good security, would there? 

Mr. Fischer. There is no excuse whatever for that. 

Senator Hollis. But if it were thrown open, so that if they had 
to go down through the list and consider what loans were really 
sound, the class might not be as high as it is with a limited amount to 
loan ; is that not true ? 

Mr. Fischer. Why, you might look at it in that way, too, and it 
would be the right way to look at it. 

Senator Hollis. Yes. 

Mr. Fischer. But you take the life insurance companies, and they 
find no trouble. 

Mr. Platt. There is no favoritism in making the State loans, is 
there? 

Mr. Fischer. No, sir ; I have never seen any. 

Mr. Platt. And no politics ? 

Mr. Fischer. Well, politics might cut some figure once in a while. 

Mr. Woods. Does the State loan on lands west of the Missouri 
River? 

Mr. Fischer. Yes ; it loans on lands west of the river in this way, 
that if you buy those State school lands, they allow you to buy them 
in a way that leaves a certain amount due on them, under a mortgage 
or deed of trust. They charge you 6^ per cent interest, and in case 
of failure to pay that interest they add an additional penalty of one- 
half of 1 per cent. 

Mr. Platt. Is not that 6| per cent lower than anybody else would 
loan at on the same land 

Mr. Fischer. I will admit that. But in order to build up the 
country, they ought to have a better rate of interest. The insurance 
companies do not go west of the river up to the present time, at 
least not to my knowledge. They all stay east of the Missouri 
River. 

Mr. Woods. Would you consider that the State loans assist in 
keeping down the rates of interest? 

Mr. Fischer. They have assisted in doing that. T certainly must 
admit that. 

Mr. Woods. Yes. 



150 EURAL CREDITS. 

Mr. Platt. Has the value of the lands west of the Missouri River 
increased, generally speaking? 

Mr. Fischer. No. You see the failure of crops the three last years 
there was very unfortunate, and there is no increase of value. In 
fact, where four years ago we paid as high as $4,000 for a quarter 
section of land, after it was proved up you could buy that same land 
for $500 to $800. 

Mr. Platt. Then you would not say that it was always a safe 
proposition to lend 50 per cent of the value of the land, would you? 

Mr. Fischer. Well, it is not in the beginning, but when these 
mortgage companies get hold of this land and go to the little news- 
papers in the countiy and boost it up, there is no danger of that land 
ever coining down unless there is a continuous failure of crops for 
more years than three. 

Mr. Platt. Lands have sold in South Dakota for less than the 
value of the mortgages, have they not? 

Mr. Fischer. They have sold for less than it cost to prove them 
up under the land laws. [Laughter.] 

Mr. Bulkley. Mr. Fischer, have you concluded all that you want 
to say? 

Mr. Fischer. Yes; I did not want to occupy any more of the 
time of the committee. 

Mr. Bulkley. Well, we thank you very much for your state- 
ment; it has been very interesting indeed. 

Mr. Fischer. Well, I want to thank you gentlemen for giving one 
of the humblest citizens of the United States a chance to tell what 
he does know. 

Senator Hollis. We feel very much obliged to you, Mr. Fischer. 



THURSDAY, FEBRUARY 19, 1914. 

House of Representatives, 

Washington, D. C. 
The committees assembled in joint session at 10.30 o'clock a. m., 
Hon. Robert J. Bulkier, presiding. 

Present: Senator Hollis and Representatives Brown, Stone, Sel- 
domridge, Weaver, Ragsdale, Hayes, Woods, and Piatt. 

Mr. Bulkley. Mr. Fischer, you may continue your statement. 
(The continuation of the statement of Mr. Fischer may be found 
at page 144, proceedings of February 18.) 

STATEMENT OF JOHN LEE COULTER, SECRETARY OF THE 
UNITED STATES COMMISSION TO INVESTIGATE AND 
STUDY RURAL CREDITS. 

Senator Hollis. Give your full name and position and so on, 
please, so that it may go into the record. 

Mr. Coulter. My name is John Lee Coulter. My present posi- 
tion is in the Department of Commerce, although my principal in- 
terest is that of farming in Minnesota. 

Senator Hollis. How long have you been in the Department of 
Commerce ? 

Mr. Coulter. I have been employed there off and on since 1909, 
but not continuously employed. 

Senator Hollis. In what line of work ? 

Mr. Coulter. For about three years I have had charge of the 
agricultural statistics in the Census Bureau, the compiling of the 
1910 census of agriculture. 

Senator Hollis. In how much land are you interested in Min- 
nesota ? 

Mr. Coulter. Well, I am directly and indirectly interested in 
considerably over 1,000 acres there, and through my wife, in some 
land in Texas, also some in Oklahoma, and personally, to a small 
extent, in some land in Florida. 

Senator Hollis. Do you personally direct the farming operations ? 

Mr. Coulter. No; I do it by correspondence largely. Although 
I visit the farm 

Senator Hollis (interposing) . You have done it personally, how- 
ever, have you not ? 

Mr. Coulter. Oh, yes; until 1910 I scarcely ever spent a summer 
away from the farm; and I have directed the farm labor with from 
50 to 75 hired laborers on it. I have also done the work from 5 
o'clock in the morning until 8 or 10 o'clock at night as a regular 
thing. 

Senator Hollis. Dr. Coulter, you were a member of the United 
States commission that went to Europe last year, were you not? 

151 



152 RURAL CREDITS. 

Mr. Coulter. Yes, sir. 

Senator Hollis. And you actually went to Europe, did you not? 

Mr. Coulter. Yes, sir. 

Senator Hollis. And were with the commission throughout the 
trip? 

Mr. Coulter. Yes; that is to say, we divided up, more or less. I 
was not personally with the large body of the American commission 
very much, and I do not think I was with other members of the 
United States commission more than half the time at most, because 
I had previously made a study for several years of conditions in 
Italy, Germany, and France, particularly, and I wanted to study at 
first hand, after merely seeing the illustrations in those countries, 
the Russian policy, and that of some of the other countries; and I did 
that principally because of the talk in this country of Government 
loans. I knew that Russia was the leading country of the world in 
that respect, and I wanted to find out why and something about 
how it worked, and some of the conditions existing there. 

I also knew that Holland, for instance, was one of the countries 
where the Landschaften system, the purely mutual societies, seemed 
not to have gotten a stronghold. I knew that there were in that 
little country 50 or 75 joint-stock mortgage companies that did busi- 
ness with farmers, and I wanted to see how it was working out; and 
so in Belgium and Denmark, and some of the other countries. 

But I did spend some time with Mr. Moss and the others in Italy 
and France, Germany, Austria, and Hungary. 

Senator Hollis. You may now proceed with your statement, Dr. 
Coulter, in your own way. 

Mr. Coulter. Before taking up that matter, I might say a word, 
if the members of the committee would like to get details, with refer- 
ence to State loans on farm lands. I think I could very easily get 
together some material on that subject. 

About six years ago I made a careful study of that problem in 
several States, and have the manuscript which I wrote up for people 
interested at that time, giving the detailed experiences of some of the 
States — the States that do the most of it. 

Minnesota does an immense amount of that sort of thing, with its 
school funds. North Dakota, since statehood, has loaned millions 
and millions of dollars to the farmers on farm land, and some other 
States have done the same thing. I see Mr. Norton here from North 
Dakota; he knows all about the details in that State; and he is a 
Member of the House of Representatives. But I have all of those 
details, if the members of the committee wish to have them at any 
time. 

Senator Hollis. Will you not give us your conclusions on the 
subject? 

Air. Coulter. Well, I think that so far as States have trust funds, 
such as school funds, or university funds, or capitol funds, or other 
such moneys, it is a very good use to make of such funds to invest 
them in mortgages. I think it is very much better than for the 
States to continue holding the land and trying to rent it out. I per- 
sonally inspected a good many pieces of land in connection with this 
point. For instance, in North Dakota a few years back a great many 
lands were leased out by the State; the State wanted to hold the land 
until it could get a higher price for it ; and they were getting a fairly 



EUEAL CREDITS. 153 

good income in the meantime by renting the land. I remember inter- 
viewing farmers all around these patches of land, and the farmers 
were disgusted with the system, because it was entirely a renting 
proposition. The people operating those rented lands did not try to 
keep down the foul weeds, like the mustard and wild oats. And 
farmers around there occupying their own lands had to do everything 
in the way of keeping the roadside clear, and in spite of what they 
did, the weeds went across the road. A quarter section of this rented 
land had to be thrashed, and the machine, after it left there, carried 
in the separator all sorts of foul weeds; and the wagons driving 
across picked up the weeds and scattered them; and farmers gen- 
erally were disgusted with the whole idea of the renting system. 

Senator Hollis. That is, unless a man actually owns the land, or 
expects to do so 

Mr. Coulter (interposing). He is not interested. 

Senator Hollis. He will skin the land and will not keep it in shape ? 

Mr. Coulter. He will not keep it in shape, and he will not do nis 
road work around it or he will do it in a slovenly manner. He will 
not take care of the fences and the buildings unless he knows that he 
is personally interested — or unless as they do in some European coun- 
tries, the tenant is compensated when he leaves for all additions and 
improvements or benefits which he left on the farm; but that is a 
very difficult thing for the State to go into. 

On the other hand, I think the States does well to lend the funds; 
and I personally heartily approve of the idea of lending them to some 
extent to farmers. I think: they should be offered to any applicant 
with as good security as these municipal bonds, or county bonds, or 
where there is absolutely good security — that is, for the benefit of the 
schools. 

Mr. Bulkley. In connection with what you are just saying about 
the care which a tenant gives to his land, Mr. Coulter, have you 
observed any difference in the care taken by mortgagors and persons 
who hold their land free ? 

Mr. Coulter. Yes; I have. I have personally been so interested 
in it that I have spent a great many hundred dollars in looking into 
it. My father is now getting to be so old that he has to quit the farm, 
and somebody has to run it, and it is very difficult to get a manager. 
In the family we have several hundred acres that have either got to 
be patched out to tenants or sold, or else I have got to go back and 
live on the land, and there is one of the "back to the farm" problems. 

And I have tramped up and down the United States trying to 
figure out what is the best way to operate the land if you do not 
want to live on it yourself, and I must confess that unless you adopt 
a system of long-time leases and have a contract arrangement whereby 
the tenant is going to get and knows that he is going to get the benefit 
of any good that he does to the farm itself at the termination of his 
lease I think the leasing proposition is a mighty poor business. 

Mr. Bulkley. What I want to know is tlij^: Does a man who 
owns his farm, free of encumbrance, take better care of it than the 
man who has a big mortgage on his farm ? 

Mr. Coulter. I do not know that there is much difference between 
the owner who is free and the owner who is mortgaged; but I think 
there is a very decided difference between the owner and the tenant. 



154 RURAL CREDITS. 

Now, on the other question, since you ask, the State of Wisconsin, 
about two years ago, through some State officers, asked me to inves- 
tigate that question to some extent. 

"The census report showed that Wisconsin had more mortgaged 
farms, a larger proportion of mortgaged farms to owned farms, free 
from encumbrance, than any other State in the Union; and they 
wanted to find out whether the State was going to the dogs or whether 
investigation would show that the farms operated by owners with 
mortgages were as well managed and opeiated and kept up as the 
others. 

I will give you just one simple result that I found for the United 
States. I took the matter up not as a local question but as a na- 
tional, question. The results of the census showed that there were 
about 2,250,000 farms operated by owners, free from debt, and some- 
thing over 1,000,000 faims operated by owners who had mortgages 

Senator Hollis. Do you mean in the entire United States ? 

Mr. Coulter. Yes; in the entire United States. Now, I compared 
those two groups so that you could not say that it was any special 
condition that would offset general conclusions; and I found that 
the "owners mortgaged" had larger farms than the "owners free from 
debt." In other words, they had purchased lands with their bor- 
rowed money. They had an average of 10 acres more per farm for 
the whole country. 

But what was more significant, the "owners mortgaged," had more 
improved land per farm. The owners who were free from mortgage 
had 64 acres per farm for the whole country, while the owners with 
mortgages had nearly 82 acres per farm. There were 18 acres more 
per farm being cultivated by those farm families who had mortgages. 

It seemed that they were using that money to improve and develop 
the farms. I found that the average value of land per farm free from 
debt as $3,5S8, and for those which were mortgaged it was $4,913. 
In other words, it was $1,400 more per farm; the farmers •with mortg- 
ages have more valuable farms. 

I wanted to find out why that was; and so I took the question of 
buildings per farm. 

For the whole United States the "owners free" have buildings on 
their farms with an average value of $1,093. The "owners mort- 
gaged" have buildings with an average valuation of $1,284; that is 
to say, there is nearly $200 per farm more invested in buildings by 
the mortgaged farmers that the free farmers; but I raised the ques- 
tion do they cultivate better; do they farm better : 

Mr. Bulkley (interposing). May I interrupt you a moment, Dr. 
Coulter? Does that make the value of the land the same in the two 
cases ? 

Mr. Coulter. No: it is higher for the mortgaged farmer. 

Mr. Bulkley. It is higher for the mortgaged farmer per acre? 

Mr. Coulter. Yes; higher per acre. The average value per acre 
for all land in "owned farms tree from mortgage" is $26.46, and for 
mortgaged farms it is $33.87. And, as I say, I raised the question, 
Does the farmer who has a mortgage farm better than the farmer who 
is free? Are they likely, after all, to turn out to be, generally speak- 
ing, more progressive and to be the farmers who have more business 
Knowledge ? And I found this fact: That the average value of imple- 



RURAL CREDITS. 155 

ments and machinery per farm, the equipment of the farm for farms 
owned free from debt, was SI 94, and for farms mortgaged $271. 
There was over $75 per farm more of equipment for the mortgaged 
farmer. 

On the question of value per acre, the average value of implements 
and machinery per acre of improved land — assuming that all of the 
implements and machinery are used on the improved land, and 
bearing in mind that this is an average for two and one-quarter 
million owned farms free and over 1,000,000 owned farms mort- 
gaged — the value of implements and machinery per acre of improved 
land for owners free was $3.01 — of course, that is getting down to 
details merely by division — and for owned farms, mortgaged, the 
value was $3.33. In other words, the farmer with a mortgage had 
32 cents per acre more invested in implements and machinery than 
did the farmer free from mortgage, thus showing the more intensive 
cultivation. 

I merely cite that fact because I know that that question is likely 
to come up in such investigations; and hence I offer that as an 
illustration. 

I made the same study for Wisconsin, as an individual State 

Mr. Bulkley (interposing). Excuse me for interrupting, but have 
you any facts showing as to whether the mortgaged farmers use up 
their soil more than the free farmers do ? 

Mr. Coulter. The only thing I could say on that would be to 
show the extent to which they seem to actually cultivate their land. 
The mortgaged farmers seem to be better equipped. I could not, 
for instance, get information showing whether they used more fer- 
tilizer. I have not the details of that, nor of many other similar 
facts; but they seemed to be better equipped with live stock, with 
implements and machinery and with buildings, and there were more 
improvements. Out of each 100 acres they had more improved land 
and in every way the^y seemed to be the most successful farmers. 

I have just finished another study; there is no printed report on it 
so far, but I asked the Census Office to authorize me to do the work. 
The actual age of each farmer was ascertained in connection with the 
census, and I made a little study to see whether farmers with mort- 
gages were younger men, or older men; whether they were the new 
farmers just coming on and who were better acquainted with business 
methods, etc., or the older homesteaders, the early farmers. 

And it seems that the owners mortgaged, generally speaking, are 
the younger farmers. 

Senator Hollis. Well, possibly by the time they get older they 
have been able to pay off the debt. 

Mr. Coulter. Yes; they have been able to pay off the debt; that is 
an offsetting item I was going to mention. 

Senator Mollis. Yes. 

Mr. Coulter. It seemed absolutely impossible to prove anything 
further by gathering these facts; but from observation I feel that, 
generally speaking, the farmer who understands the business well 
enough to take chances on a mortgage, a man who takes out a mort- 
gage because he sees an advantage in it, will be able to pay it oft. 

For instance, my first experience with a mortgage was a determi- 
nation to straighten up the current outstanding obligations and pay 
cash for absolutely everything the day it was bought. If it were a 



156 RURAL CREDITS. 

thrashing machine, we paid down $3,000 in cash and got all the dis- 
counts going, and found it was a distinctly profitable method of con- 
ducting farming. 

Mr. Hayes. As it is of conducting every other business. 

Mr. Coulter. I think it must be, although I do not know as much 
about other kinds of business. 

Mr. Hayes. I have been in a good many businesses, and I think so. 

Senator Hollis. Well, there is an interesting statement in the 
newspaper this morning which comes from Mr. James B. Forgan, the 
banker, of Chicago, in which he says that the up-to-date merchant 
now, instead of paying for his goods by notes, borrows money at the 
bank and gets the advantage of the cash discounts, and that he finds 
it profitable. That is just an illustration. 

Mr. Hayes. Cash within 10 days; that is the general rule now. 

Mr. Platt. On the whole, it appears from j^our statement that 
oppressive rates of interest have not oppressed the farmers very 
much. The younger men have mortgages and they are able to pay 
them off as they go along. 

Mr. Coulter. I think that is an interesting illustration of the 
extent to which age enters into this problem. When I was an 
infant in arms the subject was widely discussed by Henry George 
and others, and I used to have the idea that the young man now 
had no chance at all. Evidently that was so from the writings 
of such men, and that the young man could not get along at 
all and the country was rapidly filling up with tenants, and it was 
necessary for the Government to jump in and do something to pre- 
vent that. 

I have before me now the first concrete evidence that I have 
obtained, outside of general observation and study, that the condi- 
tion is not so very bad. But, as to ages of farmers, I wanted to see 
how the farmers were distributed between owners and tenants, and 
I find that of all the famers under 24 years of age 

Mr. Bulkley (interposing). Is this throughout the United States? 

Mr. Coulter. This is for the whole United States. Of all farmers 
under 25 years of age, only 23 out of each 100 own their farms, either 
free or mortgaged, while 76 per cent are tenants. In other words, 
the young fellow evidently does start in as a tenant; even if he is 
the son of a prosperous farmer, his father does not give him the farm 
to start with, but he has to operate it for a while as a tenant and 
demonstrate that he can do this. 

With each age group a higlmr percentage become owners and a 
lower percentage tenants. 

For instance, of farmers from 25 to 34 years of age, for the whole 
United States, 44 per cent are owners and 56 per cent are tenants or 
managers. Of the younger class, 76 per cent, as I said, are tenants 
or managers. 

Out of every 100 farmers between 35 and 45 years of age, 62 are 
owners of the farms and only 38 are tenants or managers. 

From 45 to 55 years old, 73 out of every 100 are owners and only 
27 are tenants. 

From 55 to 65 j^ears, 78 out of every 100 are owners and only 22 
are tenants. 

Of all farmers 65 years old and over, 85 out of each 100 are owners 
and only 15 are tenants. 



RURAL CREDITS. 157 

Now, the question arises at once, what are you going to do about 
those 15 farmers who remain tenants until they are 65 years of age 
and over? The National Government might make them owners in 
some way. I suggested this recently at a meeting of the State 
Farmers' Institute at Richmond, Va., to an Englishman who makes 
annual trips, I believe, back to England and Ireland, and he says, 
"For God's sake, don't suggest that." He said, "We are trying now 
to make an owner out of every Irishman," and he added, "I am sur- 
prised that there are not more than 15 per cent that you could not 
make an owner out of permanently, no matter how long you tried." 
And then he went on to say that we ought to recognize that, just as 
some men are tall and some men are short, and just as some men are 
fat and some are thin, and some have long hair and some have not 
any, and some blue eyes and some dark eyes, etc. — so there would 
always be men who would not be capable of becoming permanent 
farm owners; and it would be surprising that there were not more 
than 15 or 20 per cent who never did become farm owners. 

Mr. Hayes. And never could. 

Mr. Coulter. And probably never could, even if the Government 
annually gave them some assistance. 

Mr. Bulkley. Dr. Coulter, how old are these figures ? 

Mr. Coulter. This is from the census of 1910, and it is the first 
time that any such figures have been compiled by the Government; 
they have not been printed yet; it is just a little subsidiary inquiry 
which I thought could be compiled from the figures in the office. An 
official report on this subject will soon be published. 

Mr. Bulkley. It has been stated a great many times, Dr. Coulter, 
that tenancy is increasing in this country. What do your figures 
show in that respect? 

Mr. Coulter. Tenancy is increasing in this country. And in case 
that question should be asked, I thought I would bring with me to-day 
figures showing the actual increase for the whole country. 

In the last 10 years, all the farms in the United States increased 
only 11 per cent. 

Mr. Bulkley. From what year? 

Mr. Coulter. From 1900 to 1910, the farms increased 11 per cent. 
During that time the farms operated by owners increased only 8 per 
cent and evidently, therefore, the tenant farmers increased faster 
than the owners. 

Mr. Hayes. Three per cent? 

Mr. Coulter. Or taking the total for the group of tenants, 16 per 
cent 

Mr. Bulkley. You can not go back to 1900 and make a compari- 
son of these figures according to the age of the farmers, can you ? 

Mr. Coulter. No; I do not believe I could, for each age group. 

It has seemed to be a practical question, right off, to see whether 
tenants continued as tenants until they became very old men. 

I should state here that there is a further point that I have not had 
time to look into in connection with this inquiry. I expect that 
some one will at once say that these tenants, whenever they find that 
they can not succeed and can not buy the farms drift to the cities. 
That is to say, that the increase in the city laboring class comes from 
failed tenants who never would become owners. I do not know that 



158 KURAL CREDITS. 

there is any way to prove or disprove that statement, if it should be 
made. My observation is that that is not true. 

Mr. Hayes. No. 

Mr. Coulter. It seems to me that the men that leave the farms 
are not always the ones that would not become owners. It is, I 
think, unfortunately true that it is too often the other way. 

Mr. Hayes. Yes. 

Mr. Coulter. The men demonstrate that they can move much 
faster and do not stick to that particular community. However, we 
have, so far as I know, no facts on that question. 

Senator Hollis. Dr. Coulter, your figures as to the increase in 
farms do not necessarily indicate that more land has been taken into 
cultivation in that ratio, but that the larger farms may be split up r 
do they not ? 

Mr. Coulter. That is actually what has happened. The actual 
land in farms increased only 5 per cent, while the number increased 
1 1 per cent, showing that there has been a cutting up of a great many 
farms. 

Senator Hollis. Do you not think that is a very encouraging 
condition ? 

Mr. Coulter. Yes; I think it is very encouraging and a movement 
in the right direction. 

Mr. Platt. And that in itself would give rise to an increase in 
tenancy, would it not ? 

Mr. Coulter. It is very likely to do so. And the parts of the 
country where tenancy has increased more rapidly are the sections 
where the size of the owned farms has decreased. 

Mr. Seldomridge. Can you tell us where the tenancy has increased ? 

Mr. Coulter. Yes; I have the figures for each State. Possibly it 
would be better to give it by general divisions of the country. 

Mr. Seldomridge. Yes; that is what I had in mind. You need 
not take up the time of the committee by looking it up now, but you 
might make up a little statement which we can put in the record. 

Mr. Coulter. I would rather do it that way. 

(The statement referred to is as follows:) 

Increase op Farm Ownership and Farm Tenancy in the United States 

Between 1900 and 1910. 

For the United States as a whole there was an increase of about 11 per cent in the 
number of farms between 1900 and 1910. Tenants increased somewhat more rapidly 
than owners; thus there was an increase of only about 8 per cent in the number of 
farms operated by owners, and about 16 per cent in farms operated by tenants. This 
is a very much better showing than during preceding decades. Thus, between 1890 
and 1900 the increase in the number of farms operated by owners was less than 14 per 
cent, while the farms operated by tenants increased over 56 per cent. The same 
statement applies with reference to the movement between 1880 and 1890. During 
that decade the farms operated by owners increased less than 10 per cent, and farms 
operated by tenants increased over 26 per cent. It would seem that the country had 
commenced to establish itself on a basis of normal progress, under which young men 
generally start in as laborers and tenants and gradually become owners, through a 
series of steps of progress. 

Turning now to the various divisions of the country, it might be noted that there was 
a decrease in the number of farms in the New England States, and this decrease was 
almost entirely in the tenant class. Owners decreased in number only 143, while 
tenants decreased in number nearly 3,000. In the Middle Atlantic States, including 
New York, New Jersey, and Pennsylvania, even a better showing is made for owners, 
since there was an increase of over 1,300 owners and a decrease of nearly 19,000 in the 
number of tenants. In the group of States from Ohio to Illinois, inclusive, and includ- 



RURAL CREDITS. 159 

ing Wisconsin and Michigan, the reverse movement is shown. There was a decr r ase 
of 2 per cent in the number of farms operated by owners, and an increase of nearly 2 
per cent in the number of farms operated by tenants. In the group of States west of 
Wisconsin and Illinois there was an increase in the number of owners of about 21,000, 
and an increase in the number of tenants of about 28,000. In the Southern States 
extending south from Delaware and west as far as Texas there was an increase of 
over 170,000 in the number of farms operated by owners during the last 10 years, and 
at the same time an increase of about 300,000 in the number of farms operated by 
tenants. This represents very largely a breaking up of the large plantations and the 
addition of improved land in the same. 

In the mountain States there was an increase of 75,000 farms operated by owners, 
and only 7,000 operated by tenants; while on the Pacific slope, including California, 
Washington, and Oregon, the number of farms operated by owners increased over 
43,000, and the farms operated by tenants increased only 4,800. 

Mr. Coulter (continuing). I might say that it is literally the fact 
that tenancy has decreased in a dozen or 15 States; the percentage 
of the total number of farms operated by tenants has actually decreased 
in a considerable number of States. It has increased rapidly in the 
Southern States, where the colored farmers and the poorer white 
farmers have been taking part of what were formerly the big planta- 
tions. In other words, the tendency seems to be that farms through 
the North are operated by hired labor and are smaller than in the 
southern districts where the big plantations are divided up and 
operated by croppers, standing renters, and other classes of tenants 
rather than by the hired labor. For instance, in Mississippi less than 
20 farmers out of 100 hire any labor at all. In Massachusetts 85 
farmers out of every 100 line some laborers during the year. 

Mr. Seldomridge. Can you make any comparison, Dr. Coulter, as 
between interest rates in the sections where the tenancy is lowest and 
in those sections where it is highest ? 

Mr. Coulter. It is the fact that the interest rates are the highest 
in some parts of the country where tenancy is also highest, and where 
tenancy is increasing; but I do not know that there is the relation of 
cause and effect there. 

Mr. Platt. You would not say, would you, that the movement 
toward dividing up the farms rather than hiring laborers is a step 
backward; it is rather a step in advance, is it not? 

Mr. Coulter. I think it is a step in advance. 

Mr. Platt. I think so. 

Mr. Coulter. But that, of course, is a matter of opinion and might 
not hold in all sections of the country at all times. 

Mr. Platt. They are more likely to become owners .ultimately 
where they are tenants than where they are hired laborers ? 

Mr. Coulter. I think so. 

Mr. Platt. Certainly that is true. 

Mr. Hayes. How about the Far West; tenancy must be decreasing 
there ? 

Mr. Coulter. It has not changed materially there. There is no 
big upward movement of tenancy. There seems to be approximately 
the normal number of farms operated by tenants as the young men 
come in and as the old men become retired owners. I must say this, 
although I think you could pick up some articles which I wrote when 
I had no business writing anything, where I said that this terrible 
tenancy evil was coming over the country. I thought everybody 
should be an owner from the day he started operating. That was the 
natural inclination, if you read what was being written at that time 



160 RURAL CREDITS. 

But it seems to me now that that is a sensible movement. Every 
man has to start in, unless he is unfortunate enough to inherit some- 
thing, and work his way through; and I think it is best that it should 
be that way; and I think it is not at all a bad thing, I repeat, that 
there is a fair proportion of tenants in the country, especially if they 
are people who wijl go right on through the various stages, become 
owners, and pay for their places. 

Senator Hollis. That is, the result of your researches did not agree 
with the theories which you originally held? 

Mr. Coulter. No ; and it seems to me that we are not getting into 
any terribly bad condition as yet. 

Mr. Platt. If it were possible to make such a study as the chair- 
man suggested, of age groups, with one of the previous censuses so as 
to show whether or not the chances of a man going on a farm are better 
now than they were 10 or 20 years ago, it seems to me that that 
would be a very valuable thing. 

Mr. Coulter. I think it would be, if we could do it. I shall look 
into that and see if it is practicable. 

Mr. Woods. You have no figures, have you, showing the death rate 
among the tenants as compared with the death rate among the 
owners of farms ? 

Mr. Coulter. I have not. 

Mr. Platt. Generally speaking, there is no great increase of 
tenancy in the Eastern States, is there ? 

Mi*. Coulter. In what States ? 

Mr. Platt. In the Northeastern States ? 

Mr. Coulter. No. As a matter of fact, there is an actual decrease 
in most of the northeastern part of the country. 

Mr. Platt. Yes. 

Mr. Coulter. And there is a very slight increase in some of the 
States; in Wisconsin, for instance, there is a very slight increase in 
tenancy; it is almost insignificant. 

Mr. Platt. Yes. 

Mr. Hayes. Well, there is not much tenancy there, anyhow, is 
there ? 

Mr. Coulter. No ; the tenancy is very low there. I might say that 
I took that question up further in this way: I have not quite com- 
pleted the study yet. but it seems to me that you can say for prac- 
tically every State in the union that the States where the highest 
percentage of farms operated by tenants will be found, are the States 
where you have the lowest percentages of mortgages. 

For instance, Wisconsin, and two or three other States, where 50 
out of 100 owners have mortgages, in those States, you find the lowest 
percentage of tenancy. Take the Southern States, where there are 
very few mortgages comparatively — not 20 farmers out of 100, on 
the average, throughout 15 or 20 Southern States have mortgages — in 
those States from 50 to 70 per cent of the farms are operated by 
tenants. In other words, if a system is provided so that young 
farmers could start in as tenants, could buy the farm, and take a 
mortgage on them, you would reduce tenancy even now. 

Those are matters of exact statistics, and not matters of guess. 

Mr. Platt. Might it not be a good plan to require, where a man 
wanted to buy a farm and borrow money on it through some such 



RURAL CREDITS. 161 

system as we might provide, that he should rent a farm and prove his 
capacity to run it first ? 

Mr. Coulter. I am not sure that it would not be worth while; 
that is to say, he would have to actually operate a farm independently. 

Mr. Platt. Yes. 

Mr. Coulter. I really think that there is more or less risk in a man 
jumping in and starting to run a farm and going into debt heavily to 
do it, unless the man has had some experience. I know I made a 
great many mistakes in the beginning as a farm boy. 

Mr. Hayes. Would not most men who had to put up 50 per cent 
of the value of their farm be men who had had some experience ? 

Mr. Coulter. Probably so. 

Mr. Hayes. They would probably be men who had had experience 
before they applied for a loan under the system. 

Mr. Coulter. But it is easy to see how some one from the city — a 
bank clerk, for instance — might get a few thousand dollars and go 
out and buy a farm and pay half the value of the farm and give a 
mortgage for the remainder and be a complete failure. He might be 
a magnificent bank clerk, but until he tried it out for two or three 
years as a tenant and really learned the fundamental principles he 
might make a complete failure as a farmer, and we would have 
another wreck on our hands. 

Mr. Hayes. Of course, there would be comparatively few cases of 
that kind, would there not ? 

Mr. Coulter. Yes; I think there would be few of them. 

I think that those questions are all related to this general subject 
and naturally are preliminary to it. But my interest in this par- 
ticular question of agricultural credit arose in a special way about 
two years ago, when I was asked the question, whether I thought 
any new system of agricultural credit was necessary; and I had 
merely my own views at that time, from studying the question from 
a personal and purely selfish standpoint. I had never thought of 
it as a national question or from anybody else's standpoint. And I 
started in to see whether certain State legislation would not be 
desirable in my home State and one or two others hi that section. 

I found out very soon that the subject seemed to divide itself 
absolutely, from the start, into two questions. 

One was a matter of personal credit for current business purposes 
and the other was a matter of mortgage credit on lands. 

And I personally gave most thought to the question of personal 
credit for a year. At that time it seemed to me that on the personal 
credit question, if the farmers were taught by the agricultural colleges 
and the agricultural papers and others interested how to use the 
banks which could be found in every neighborhood; and if, in turn, 
the banks would use their efforts to show the farmers the needs and 
to serve the farmers as they deserved to be served, we did not really 
need any new set of banks for personal credit purposes throughout 
the country, as a general thing. Many individual communities, I 
thought, did need banks. I came across some that certainly needed 
a small bank. 

There was only one particular defect that appealed to me, and that 
was due to the fact that the farmers lived out around through the 
country away from the bank, and the banker could not intelligently 
place a good rating on the farmer and did not really know how far 

37031—14 11 



162 RURAL CREDITS. 

he could trust the fanner; to what extent, in other words, the farmer 
was a good risk. Xow, the banker, not knowing — through no fault 
of his own, it seemed to me, because lie could not afford to hire a 
livery rig and go around the country all the time — the banker not 
knowing the character of the risk, and the farmer not having any way 
to bring his position to the individual hanker, there was a missing 
link, except, of course 1 , for the successful farmers, the bigger farmers, 
the farmers who were accustomed to drop in and do their business 
in a business-like way — it seemed to me that the most important 
thing was for farmers to organize in every little community a local 
credit union, or something of that sort, to take the place of Dun's 
and Bradstreet's for that little community; let 100 farmers get 
together and organize a rating society with an officer, and just list 
the farmers and their backing and what credit they ought to have 
according to the judgment of the group, and then, whenever any 
farmer wanted to get a standing with a bank, it seemed to me that 
the officer of this society might act as the second signature "in the 
name of all the group," to certify that he was good up to that point 
and that they would back him up to that point. 

And I thought if they did that it would be the connecting link 
between the individual small farmer, of whom we have 5,000,000 in 
the country, and the bank; that is, the small farmers, not the 
1 ,000,000 big ones, big enough to do business directly with the bank 
all the time. 

I studied the situation in the different European countries, and I 
found that was the general condition over there. For instance, 
Germany had not any of these little credit associations and the 
farmers had not any connecting link with the big bank, or banks 
generally, until they started what is known as the Raiffeisen Bank, 
after Mr. Raiffeisen, who started the first one. 

For many years there were ver} T few of those institutions started. 
It took a great many years to establish the first 1,000. But when 
they got up to 1,700, I remember in looking up the report, I marveled 
at the fact that within 10 years they had 17,000. In other words, all 
that was necessary was to get the idea started, and then the farmers 
organized all of these little credit unions which do the little local 
banking business for the members. 

The idea spread to Italy. 

Mr. Platt. Will you permit an interruption, Dr. Coulter? Did 
those German Raiffeisen societies guarantee each other's credit, as 
you originally 

Mr. Coulter (interposing). Some of them now are limited Uabihty. 
Some of them have an unlimited Uabihty; that is, what we would 
call liability. 

Mr. Platt. Do they rate each other? 

Mr. Coulter. They rate each other, and they know how far they 
will let any farmer borrow. 

Mr. Platt. That is, in their own association ? 

Mr. Coulter. Yes; in their own Raiffeisen society. 

Mr. Platt. They do not rate the farmers for the purpose of showing 
what credit they might obtain from a bank outside the association, 
do they? 

Mr. Coulter. No; but the banks do not now do any business with 
the small farmers at all; those farmers do their business through 



RURAL CREDITS. 163 

the Raiffeisen societies; that is to say, only the big farmers now deal 
directly with the outside big banks. The great mass of smaller 
farmers deal through their own society, and they practically all do 
that. In other words, in Germany, which is not as big as Texas, they 
have 17,000 of these little credit societies, or Raiffeisen societies. 

Mr. Woods. What rate of interest do these farmers have to pay 
when dealing with these societies ? 

Mr. Coulter. I think we found that generally throughout Ger- 
many it was between 3^ and 4£ per cent; what would you say to 
that, Mr. Moss ? 

Mr. Moss. I think it would be safer to put in Germany at 4^ per 
cent. 

Mr. Coulter. Four and one-half per cent. There are many indi- 
vidual cases, however, where they would say, "We pay 3^ per cent 
interest." 

Mr. Hayes. That is, on the short-time loan, of course ? 

Mr. Coulter. Yes; on the short-time loan. 

Mr. Platt. Very small ones ? 

Mr. Coulter. Very small ones; yes, generally speaking. 

But that idea of the little local farmers having a connecting link, 
to make use of their local funds and then get outside connections, 
appealed to me. 

I found that that had spread practically all through Italy, under 
another name, because it was another man who started the thing in 
Italy — a Mr. Wollemborg, whom we had the pleasure of meeting and 
discussing the subject with. He was the one who first started and 
successfully operated such an association, and he is now in one of the 
highest positions in Italy, a close adviser to the Bong of Italy. 

The same thing is true of Austria. The societies there spread by 
the thousand. 

And they are now introducing the same thing in Ireland. They 
call them there " credit unions." And so they are all over Europe, 
all over Russia, under different names, and with slightly different 
connections. In Belgium, you find the same thing. In France, they 
draw funds directly from the Government. I found them operating 
in every community I went to, all over Europe. 

Mr. Brown. Dr. Coulter, while we have the information in the 
published volumes, and can read it there, for the purpose of getting 
it concisely stated in the record of these hearings, will you tell us how 
those credit unions, or societies, are formed ? 

Mr. Coulter. Yes, indeed. Now, as to how they are formed. We 
have seen the number of them and the way they exist all over Europe; 
they are very small, and they are of many kinds, and with many 
variations. Little groups of 10 or 15, and sometimes not more than 
7 or 8 farmers, will get together and form what they will call a credit 
union, or credit association, or whatever name they wish to give it. 

In some countries they are now required to have a small foundation 
capital. Generally speaking, it is insignificant, although in some 
countries it amounts to $2,000 or $3,000, on the average. 

In some countries they actually assume unlimited liability for all 
transactions approved by the society. That is to say, a member can 
not do anything he Avants to and have them back of him, but every 
transaction which is approved by their society they get back of with 
their entire resources. 



164 RURAL CREDITS. 

Iii other districts they have limited liability. Double liability is 
-our rule in this country in the case of banks, but I saw every kind of 
liability in Europe — five times the amount of paid-in capital in some 
•of these little societies, in some 10 times the capital, and in some 25 
times. I remember one was 100 times the capital. Doubtless there 
they did not want to make it absolutely unlimited, but to put it to a 
point where there was no question at all that they were back of it. 

Senatoi Mollis. Dr. Coulter, any limitation of the liability of the 
members of a voluntary association in this country must be statutory, 
must it not ? 

Mr. Coulter. Yes; in this country. 

Senator Hollis. How is that abroad '. 

Mr. Coulter. Many of them have no statutory limitations at all. 
They may not have any. 

Now, Austria has a new idea up, in which they are suggesting that 
a law be passed which will be uniform for all of them, requiring a small 
liability and then what is called a proportional liability for future 
payments. In other words, no individual member could be attacked 
and made to bear the responsibility for the whole credit union, but 
any outside creditor could come upon the union for the entire amount 
due, and this would have to be distributed over all the members, in 
proportion to some rule which they might adopt. That would encour- 
age, as they said, the big man in the community to join the union with 
the little men, knowing that, at best, he would never have to bear 
any other than his proportional liability. 

But, generally speaking, the liability is just unlimited. Any mem- 
ber can be called upon for the full amount. 

Now, as to the number of members, they are down as low as seven. 
As to capital, it may be almost nothing, or it may be $1,000, or $2,000, 
or $3,000, eventually. As to liability, it may be strictly limited or 
absolutely unlimited, or any degree between these two. 

Almost universally the rule is that no loan is made to anyone who 
is not a member. In other words, they must know what becomes of 
the money that they lend out that they are liable for. 

For instance, in Italy and other countries, clear up to Belgium, 
where the Catholic Church is strong in the country districts, I noticed 
tthis situation — the problem seemed a rather peculiar one — that the 
local priest would be a member and he would probably be the local 
•officer. They did not have a separate bank building and there was 
practically no expense. He might be the local officer. He was good 
at figures and he could keep their records for them in good shape. I 
asked a number of them the question whether they could borrow, 
and they would probably say, "Yes; so far as being a member is con- 
cerned, I can borrow. Of course I am a member and I can borrow. 
But there is another rule of the society, so that even if I am a member 
I can not borrow unless I am actually a farmer and want to borrow 
the money and use it on the farm." 

They adopt rules that they will not lend to anybody but a member, 
and if they happen to have a school teacher or a priest, or somebody 
else who is a member but not a farmer, they will not lend to him, and 
even where the member is a farmer they will not lend to him unless 
he is going to use the money on his farm. 

Senator Hollis. What is there in the membership for the school- 
teacher, then? 



RURAL CREDITS. 165 

Mr. Coulter. Oh, he might get $25 a year as an honorarium; 
possibly $10. 

Senator IIollis. Would he get an}^ dividends ? 

Mr. Coulter. There would probably not be anything of that sort. 
He is likely to have a few acres of lana, as a matter of fact. 

Senator Hollis. Yes. 

Mr. Coulter. The priest becomes a member in order to keep in 
touch with his flock. 

Mr. Platt. Is that the case in Ireland; do the Catholic priests 
become the local officers there ? 

Mr. Coulter. On this question, in Ireland, they are all working- 
together; there is no dissension at all. I sat around the table 
at a meeting with priests and Protestant leaders; also with mern 
like Sir Horace Plunkett and some others who have not any politics 
at all; and they all worked together on this matter of rural credit 
and cooperation. 

Senator Hollis. Yes; I see. 

Mr. Coulter. And once in a while I asked a question that bor- 
dered pretty close to a political question in Ireland; and one of 
those present said to me, jokingly, "We had better leave that until 
we get on the public platform, where we can say things to each 
other." 

But on the question of rural credit and cooperation, there is no 
question of party, or church, or anything else in Ireland. That is 
why the movement is spreading so rapidly. I might say that in Italy 
you find a much more noticeable question of politics or religion. 
There the Catholic Church is actively engaged in organizing credit 
associations among the farmers, and the socialists are doing the same 
thing, claiming that the church has not any business to do that. The 
socialists may be Catholics on Sunday, but they say that the church 
should not go into this business at all, and so the socialist party is 
organizing farmers into these same societies. And so are the neutrals; 
there are many who sit on the barb-wire fence and say "W^e will not 
join either group in their contentions," except that they do agree that 
it is a good thing to have these societies. 

Mr. Platt. Are the societies established by funds; is any outside 
capital used to establish them ? 

Mr. Coulter. No; they are purely local, mutual organizations. 

Mr. Platt. Are not some of the societies started by a gift or loan 
of funds from individuals or charitable organizations, or something of 
that kind ? 

Mr. Coulter. Practically never. 

Mr. Platt. I understand that the Hearst fund, or something of 
that kind is being used in the State, of New York to form credit 
unions ? 

Mr. Coulter. Well, in this country there are a few cases where 
they are trying to make a start in that way, by small loans or gifts of 
funds. But in Europe there must be 50,000 of these credit unions all 
over Europe, and I do not believe I ever heard of outside money com- 
ing in to start these little community societies. In this country, I 
know of those cases to which you refer, and have all of the details 
concerning them. 

Mr. Platt. You would not think that anything of that sort was 
necessary in order to get them going, would you ? 



16G RURAL CREDITS. 

Mr. Coulter. I would not think anything of the sort was neces- 
sary; it may be a good idea here in a few instances. The one that you 
refer to is the Jewish Agricultural Organization Society. They have 
17 unions started in this country, purely mutual societies; there are no 
State or National laws under which they are incorporated. They are 
just societies, like they are in Europe. They get a loan from the 
central organization. Those institutions are, I think, a good idea; 
but I think that farmers generally could go ahead and start these 
societies without any gift or loan. In fact, I think they could go 
ahead and start them without any law; it is not necessary to have any 
special law on the subject, except that they do not know how to go 
at it. 

Mr. Brown. Do these societies just lend their credit to each other, 
or is it secured by mortgage in any way, by a joint security of any 
kind ? 

Mr. Coulter. In lending, they lend only to members and it must 
be for a specific purpose; the application must be made for a loan, 
and that application, you see, is in the nature of a note. 

Mr. Brown. Yes; I see. 

Mr. Coulter. And that application must, almost universally, be 
seconded by some other person, and not necessarily by a member, in 
some sections; the local butcher, who may not be a member, may 
second that application, merely to concentrate it and make it specific. 

Probably, generally speaking, no other security is given than that 
application, which is in the nature of a note, but in some countries, 
in many communities, I found that the farmer will also give a short 
statement that he has a certain amount of land unencumbered, which 
statement is supplementary to the application; and there are all 
sorts of variations of that kind in the application. 

Mr. Woods. You spoke awhile ago, Dr. Coulter, about the fact 
that in order for a member to borrow money it was necessary for him 
to have a farm. You did not mean that it was necessary for him to 
own a farm, did you ? 

Mr. Coulter. No; to be operating a farm. That was the rule. 
In fact, I found cases where every member was a tenant, even in 
Italy. And, by the way, there is a large stretch of Italy where the 
farms are operated almost identically the same as the big plantation 
systems in the South, where all are tenants, and where groups of these 
tenants, 30 or 40 on a big estate, will have their own credit union, 
and their own store, etc. Those tenants may independently organize 
their unions, or they may join with the owners. And I struck many 
special little rules there. Sometimes where the members of these 
credit unions come from the whole countryside the unions are pretty 
big. I struck one with 1,500 members and another with only 7. 
| Mr. Seldomridge. These wore entirely for loans on personal 
property ? 

Mr. Coulter. Yes; for loans on personal property, one society 
had about 1,500 members. But in that case if a tenant applied for 
a loan he had to have as his second signature the owner oi property. 
That just happened to be a special rule, and I mention it to show the 
variation's. 

Mr. Seldomridge. What happens in the event that the loan is 
defaulted '. 



EURAL CREDITS. 167 

Mr. Coulter. I asked them that, and they said they did not know 
what would happen. 

Mi-. Seldomridge. They have never had a default ? 

Mr. Coulter. Probably the man would renew, and finally make 
it up. 

Mr. Seldomridge. Is there any tangible security given for the 
loan, such as we have in the way of mortgages- 

Mr. Coulter (interposing) . Chattels ? 

Mr. Seldomridge. Yes; chattel mortgages. 

Mr. Coulter. I could not find anything exactly like chattel mort- 
gages in Europe, but it was generally understood that the man gave 
everything he had, as you might say, as his backing. 

Mr. Seldomridge. Is there any chattel-mortgage business being 
done in Europe ? 

Mr. Coulter. Well, I should say, in the case of these institutions 
that it is understood that these chattels are recognized as part of 
the security. I could not find a special chattel-mortgage business 
like we have in this country. Did you look into that particularly, 
Mr. Moss ? 

Mr. Moss. I think there are no exemptions whatever in Europe 
from executions for debt, and that they can take everything a person 
has; and when a man goes in debt there he practically gives a mort- 
gage for everything he has. 

Mr. Brown. I was just going to ask whether there are any home- 
stead or exemption laws in Europe ? 

Mr. Coulter. Practically not, in any country. You may know of 
the present Egyptian controversy. The Government is trying to 
work out an exemption system there. First there was an executive 
order issued, providing for an exemption for the poor tenants there, 

I have not all the details of that, but that is a very recent problem 
that has arisen. 

Mr. Seldomridge. Do they exercise supervision over their mem- 
bers in the matter of the proper use of the loans ? 

Mr. Coulter. Throughout Europe ? 

Mr. Seldomridge. Yes; in these societies. 

Mr. Coulter. Yes; they do. In the application for a loan they 
have to specify just what they want the money for; for instance, $7 
to buy a pig; $7 to buy a goat, etc. They have the goat already in 
mind and have already made the bargain; and then, of course, the 
application goes on up to some bigger items, but they often get down 
to very small items. I saw one application for a loan in which the 
man wanted only about $15 to $18, and he had nine items set forth 
as to what he was going to do with the money. 

And they do that with their money. Now, of course, that will be 
the type that might apply to a mass of very poor tenants, such as 
colored tenants, or others of that kind. 

On the other hand, they have in Europe some of these credit 
unions which are very large and prosperous, where the loans are fairly 
large, which would be more the type that you would expect to grow 
among a prosperous group of farm owners. You have there as here 
every type of farmer. 

Mr. Platt. Are the loans always exclusively agricultural; do they 
not sometimes make loans in the villages ? 



168 RURAL CREDITS. 

Mr. Coulter. These societies, I think I am safe in saying, are prac- 
tically exclusively agricultural. The cities have sister societies, 
known throughoul Europe under the general name of "people's bank." 
In Germany they are under the name of the Schulze-Delitzsch Coop- 
erative Societies. 

Mr. Platt. They are all in the lending business, are they? 

Mr. Coulter. Yes; and they do some business with the farmers. 

Mi*. Seldomridge. And they issue a note to the party. Are these 
credit society banks mutually or severally responsible for those funds ? 

Mr. Coulter. No; I might say there that these little societies have 
regular systems of deposits, generally speaking. Now, I think you 
will find more variation there than you will in many other points. In 
France, for instance, I think I am right in saying they do not have 
any deposits, although in France there is a second exception; there 
arc many credit unions there which are known as the Durand Bank, 
or the Durand type of credit union. These are independent of the 
general system of credit unions; there are a few hundreds of them. 
In France, then, these little societies do not have deposits. 

Mr. Moss. I think they are willing to take deposits, but they get 
very few of them. 

Mr. Coulter. I think that is right. They are willing to take 
deposits, but the French peasants put their money in Government 
securities and get interest on every penny. Besides that, they know 
that they do not have to deposit if they do not want to. They know 
they can get money by the discounting process up through the 
regional bank and up through the Bank of France, through the 
commercial banking system. 

Mr. Seldomridge. Do you think the community life of the 
peasantry in Europe has contributed in any way to the success of 
these societies — the fact that these people live together in close 
association in the villages? 

Mr. Coulter. I found that they had these credit unions where 
they did not live together in villages. The village community is not 
universal in Europe, you know. In fact, in some sections of Europe 
they live entirely scattered throughout the country, and in those 
districts they have these same little credit unions. Russia now is 
taking the necessary steps to get rid of the community life within 
the next decade or two. It is so insanitary and it is so uneconomic. 
They are helping the peasants to move out and build their independ- 
ent homes in the country. As it is now, it takes the poor farmer 
nearly half of his time coming from and going to his little patches of 
land, which are scattered around; and the Russian Government is 
now helping to make them into little solid farms, and helping them 
to build their homes oul there on those farms. And about 1,000,000 
farmers, I understand, up to date, have gone out from the com- 
munities which are so insanitary and so uneconomic; and I think 
there are many indications that the little community will not survive 
with the farmers with their better roads and more economic living 
outside, and more sanitary conditions and with the development of 
rural mail delivery which they have in Europe, too. 

Mr. Hayes. There is also the safety from brigandage, and all sorts 
of things of that kind. 

Mr. Coulter. Yes ; and with the safety from brigandage, which they 
now have, and with better ways of communication. I do not know 



RURAL CREDITS. 169 

that community life in those villages will altogether disappear, but I 
do not think it is an essential feature. 

Senator Hollis. How is that system working in Utah ? I was in 
Utah some 25 years ago, and where the people gathered in villages 
and did the farming outside; are they continuing that process? 

Mr. Coulter. There is more or less of that, I think, in the irri- 
gated sections, where the farmer has a small number of acres. 

Mr. Hollis. That is true. 

Mr. Coulter. And for the country as a whole that might be a good 
thing in irrigated areas. 

Mr. Hayes. As a general rule, that is not now true of Utah, is it? 

Mr. Coulter. No. That is not a normal thing; it is exceptional. 
Of course we know that the village communitv in Europe does not 
exist for any present-day reason. It is a survival of the old necessity 
for protection, when they had to live in communities, centuries ago, 
and they built very strong walls around them, and they had to stay 
there in the villages in order to be safe. As you drive through the 
country districts of Europe you strike these communities every few 
miles, and they are all walled in with great stone walls; and it would 
be expensive for the inhabitants to move out to the independent farms 
which they operate. 

Mr. Hayes. You have not told us where these credit unions get 
the funds which they loan to their members. 

Mr. Coulter. I started to say that in France there is very little 
deposited. In some other countries, however, there are very large 
amounts of money deposited. 

Senator Hollis. In the shape of savings deposits ? 

Mi\ Coulter. Little savings deposits, left both b} T members and, 
in some districts, by nonmembers. In other words, although they 
limit the loans to members, many of them will take deposits from 
nonmembers, and the nonmembers deposit because they know it is 
absolutely secure. And generally that is one of the very best reasons 
why they have the unlimited liability, in order to attract the loans 
from the outside. 

I have before me what seemed to me to be two or three statistical 
facts that would show about the extent of that particular feature 
of deposits. 

If you take Germany — I have the facts for 17,000, approximately, 
of these little credit unions; and I asked the question and tried to 
get up the facts to show where they got their working capital. I 
found that their working capital at the date I got this, a few months 
ago, was a little over 2,000,000,000 marks. 

Now, to ascertain where they got that seemed to me to be im- 

?ortant. I found that only 1.2 per cent of it came from share capital, 
ou will see that 1.2 per cent is almost insignificant ; that is the 
share-capital feature. They had also accumulated what we would 
call surplus here. They call it "reserve, " and 2.6 per cent of the total 
working capital was reserve. The reserve, in other words, was more 
than twice the amount of the share capital. Thus the bank's own 
funds amounted to only 3.8 per cent of the total working capital. 
Of the rest, "deposits on current account" amounted to only 9.7 per 
cent. In other words, that is not much of a current account 



170 RURAL CREDITS. 

Evidently, however, these societies are the local savings societies for 
the community, because 78 per cent of these 2,000,000,000 marks 
represented savings deposits. 

Mr. Bulkley. You do not mean 78 per cent; it is 7.8 per cent, is 
it not? 

Mr. Coulter. NO; 78 per cent of the total working capital. 

Mr. Bulkley. Oh, yes; I see. 

Mr. Coulter. Only 9.7 per cent represented deposits on current 
account. 

Mr. Pi. att. Those savings deposits, of course, draw interest, do 
they not? 

Mr. Coulter. Those savings deposits draw interest. The margin 
they do business on is something wonderful to behold. Of course, 
they have practically no expenses. 

Mr. Platt. Yes. They must pay as much interest as the savings 
banks, I suppose — or do they not ? 

Mr. Coulter. Well, I think you will have to study the individual 
country. It would be pretty hard to tell. The rate of interest, 
however, I should say is very nearly the same. You find little 
variations of all kinds, but they are in very small fractions. 

Senator Hollis. But do they not, in addition to that, as a society, 
borrow some money from the banks for their members ? 

Mr. Coulter. Now, there is a very small percentage left, 8 or 9 
per cent, that they must get from outside. In Germany these credit 
unions have their own regional institutions and central institutions 
of many kinds, and they do a great deal of exchange in that way; 
a sort of a clearing for them. In other countries they have other 
ways; for instance, some of them in Italy deposit any surplus with 
the savings banks or the people's banks and borrow any additional 
money they need from those banks, and in different countries they 
have different ways. France, for instance, gets all of theirs from 
the regional bank, and then, by rediscounting process, from the Bank 
of France. 

There are all sorts of ways of getting outside funds, when needed. 
In some countries, for example, in Austria and Hungary, deposits are 
less important; they get much more from outside sources. 

Senator Hollis. And they pledge their community capital and get 
funds at a low rate of interest for disposal among their members, do 
they not '. 

Mr. Coulter. Yes; and for that reason, generally speaking, bankers 
generally do not have any objection to them. I have talked to 
bankers on the subject. Many of them said, "They are fine things; 
we could not go out and fool around to make a loan of 17 cents, or 
something like that, for a farmer who wants to buy a chicken; but, all 
told, we get a very large amount of business with these local societies." 

Mr. Platt. Right there, did you come to the conclusion that your 
original idea that the little societies might take the place of Dun's and 
Bradstreets' among the farmers would be impracticable '. 

Mr. Coulter. No; I think we need them in this country; I think the 
farmers ought to form these little credit unions. That is the way 
to carry the bank closer to the comparatively poor American farmers. 

Mr. Platt. I understood you to say that your original idea was 
that they could form societies to give each other ratings and then do 
business with the present banks ? 



RURAL CREDITS. 171 

Mr. Coulter. Either that, or actually do a part of the business 
themselves. I think it depends on how prosperous the community 
is, and how much they do. There are so many different conditions 
in this country — from the negro croppers in the Southern States to the 
big successful farmers in some other parts of the country — that it is 
impossible to work out a uniform system for them all. 

Mr. Seldomridge. Does a man have to establish a reputation for 
honesty and integrity before he can be admitted to one of these 
societies ? 

Mr. Coulter. Yes; he has to be known by the members and they 
have to pass on him. 

Mr. Hayes. They do not take everybody that lives in the neighbor- 
hood in, do they? 

Mr. Coulter. No ; they pass on each applicant for membership ? 

Mr. Platt. The supervision they give of the farms, of course, is 
valuable in itself, and an additional security ? 

Mr. Coulter. Yes; but this is purely mutual. There is no person 
hired to supervise it; but it works out this way: Suppose I am passing 
John Doe's farm out in the country and I know he borrowed some 
money to buy a pig with, and I stop in to see the pig. If he has not 
the pig, I am surprised. 

Mr. Seldomridge. Do they perform any other service for the farmer 
than the mere financial relief ? Do they give him any assistance in 
these cooperative societies in the way of marketing his produce and 
selling what he has to sell; helping him to dispose of it, and buying 
supplies for him ? 

Mr. Coulter. Yes; and there, again, we have every kind of 
experience in the different countries. My first example was in Italy. 
I stopped in a little village and I asked them if they did any other 
business; and they would answer, "No" at once. They would say, 
"No, our credit union is strictly a credit union." And when I asked 
them how they did in these other matters, they said that there was 
another society that had the same members which had this store or 
supply house. The other society would buy their fertilizer, their 
machines and seed, and so on; and the little credit union would do 
all the financial business for the little supply house. Then I asked 
them, "What do you do about selling your produce?" In that com- 
munity they dealt in silk worms and cocoons; they had a little 
cocoon drying establishment, which was entirely financed by the credit 
union. In the same community I had seen a great many grapes 
grown between the mulberry trees. I asked them who sold their 
product for them. They said, ' ' Yes, we haA^e a plant for making wine, 
a little factory, which is purely cooperative; it has the same members 
as the credit union, but it is an independent unit " 

I asked them why it was not all one unit. They said that was for 
two reasons: In the first place, some of the farmers who raised grapes 
did not raise silkworms, and they were not interested in the silk 
business, cocoons, etc. That is to say, that aM the farmers were not 
interested in all phases of the local industry. Second, they thought 
it more practicable to have the bank do only a banking business. 

In the same general part of the country, however, you go into the 
bank and stumble over bags of fertilizer and supplies. That is to 
say, the same institution will actually handle and do the business in 



172 RURAL CREDITS. 

a regular businesslike way, selling the small things for sale and buying 
the supplies. 

Mr. Brown. Do you think the European systems that you have 
mentioned are practicable in this country, and would meet the larger 
demands of our people ? 

Mr. Coulter. 1 think that for the great mass of our farmers some- 
thing along this same line would be a very valuable thing, and very 
necessary for the farmers. We have two and one-third million tenant 
farmers working toward ownership, and we have a couple of million 
very small farmers who own I heir farms. It would take a great many 
different kinds of organizations to carry the system into effect, accord- 
ing to the community. In my home district we sell carloads of wheat. 
In other districts they may sell one or two animals at a time. It 
depends on the type and extent and character of business being done. 
But absolutely the same conditions were found in every part of 
Europe. Farmers who had large farms and fine driving horses and 
beautiful lace curtains on their windows and fine pianos, etc., were 
frequently members of credit societies. In other districts, away off 
in the heart of Russia, these same societies were formed under either 
national or local direction or suggestion — these same credit insti- 
tutions. 

Mr. Seldomridge. Have these societies raised the standard of liv- 
ing over there ? 

Mr. Coulter. Of course, I have not inspected the country "before 
and after," but the question was asked, time after time, and they all 
contended that it had; that they could do many things which they 
could not do before; they had many tilings which they did not have 
before; they were more satisfied than they were before; they would 
not leave the society for anything; they were afraid to do anything 
that was out of the way for fear they might offend and get in bad with 
the society. They did not take any chance of being expelled once 
they became members. Then there were social advantages; they 
could all get together at their meetings once in a while. 

The economic advantages were considerable. 

Mr. Woods. Do you think the establishment of such societies in 
the United States would encourage thrift and savings, or not ? 

Mr. Coulter. I think they would. I think it would make it possi- 
ble for those men, gradually, through their savings, to become better 
citizens, and better farmers, and to improve their condition in every 
way. I think it clearly tends in that direction. 

Mr. Platt. Well, the establishment of such societies in this country 
does not depend upon law, and clearly is not a subject for national 
legislation, is that not true ( 

Mr. Coulter. Well, that is the next question that I think comes 
up. You do not have to have a law to provide for them, that is clear. 
But if a law were passed outlining how they could be organized, giving 
the whole scheme and an officer provided for, or some inspection office 
of some sort which would have typical forms, constitutions, by-laws, 
rules and regulations, and all necessary information to furnish to the 
farmers, I believe the plan would spread very rapidly and take hold. 

Mr. Platt. Why would not an agricultural bulletin do just as well 
as a law ( 

Mr. Coulter. Well, I think there is a great tendency in this coun- 
try to have legal recognition for any organization. For instance, in 



RURAL CREDITS. 173 

Minnesota we did not have practical, well-founded mutual insurance 
companies among the farmers for our mutual protection until the 
farmers obtained the enactment of a law providing for township 
mutual companies. Now, I suppose, practically every farmer in the 
State belongs to a mutual insurance company. We do our own 
insuring entirely. We report to the State insurance commissioner 
once a year on a little form which is furnished, and it looks very 
businesslike, and it is a very pleasant thing for a farmer to belong to 
those mutual companies. Under the law we have to report every 
year, and we do a great business in the State. 

Mr. Platt. Well, the States are passing such laws, and several of 
them have already passed such laws. 

Mr. Coulter. On credit unions ? 

Mr. Platt. Yes: on credit unions. 

Mr. Coulter. There are four States which have passed laws on 
credit unions. Massachusetts has had one for several years; it was 
a very general law. There have been about 30 or 40 credit unions 
started under that law. They have all been town unions, I believe — 
little town societies. New York passed a law just a short while ago. 

Mr. Platt. Yes; last spring. 

Mr. Coulter. And they have found a few defects in that law, and 
they are now planning to amend it at the next session of the legisla- 
ture, in a month or two. 

Wisconsin passed a law a few months ago, and I had a letter from 
there recently saying that nothing has been done under it. 

And Texas passed a law a few months ago, and I received a letter 
recently saying they had had no applicants and no organizations 
started yet. 

Those are the four States which have laws on the subject, but the 
movement has started in different States. Now, there is the question, 
of course, whether it would result in a great many different kinds of 
State laws, and whether a great many of the States will not pass laws 
on the subject. 

Mr. Platt. Would it not be better, in view of the diversity of con- 
ditions, to have the laws passed by the several States to correspond 
with their own needs, rather than to try to do anything through the 
National Government ? 

Mr. Coulter. My personal judgment has been, and I have recom- 
mended it in the past, that the States should pass these laws; that 
there is no place for Federal legislation in the matter. 

There is one question, however, that I have not finally decided in 
my own mind; and I do not know what others may think of it. 

I think that probably it will be necessary for some arrangement to 
be made whereby these credit unions can be connected up in some 
way with the Federal reserve system, which has just been established 
by the Federal Reserve Act, and which I think is an admirable 
system. 

Mr. Ragsdale. Pardon me, Dr. Coulter, but why do you say there 
should be no Federal legislation on the subject? 

Mr. Coulter. Well, first, I think that my experience in the differ- 
ent parts of Europe has led me to believe that. And that experience 
has taken me over a greater variety of country than anything we 
have in the United States — from near the North Pole in Russia to the 
southern part of Italy. 



174 RURAL CREDITS. 

Conditions arc very different in different parts of this country. I 
have spent days and weeks on plantations in the Southern States 
with friends, and the system of farming there, with those croppers, 
who are as dependent or more dependent in some parts of the 
country than the average farm laborer in other parts of the country. 
On the other hand, I nave been in other sections of the country, 
where almost every farmer who calls himself a farmer is worth from 
$10,000 to $200,000. I doubt if there is a farm owner in my home 
township who is worth less than $10,000. Many farmers do not 
talk in terms of a few acres; they say, "I think I will put in 400 or 
500 acres next year in this crop, or that crop." The different types 
of agriculture are so distinct and different that I have doubted 
whether it would be possible to form a national law which would fit 
all the needs of the different States. In other words, it has seemed 
to me, aside from this one question that I will raise, that the needs, 
and problems and characteristics of agriculture are so different. I 
found so many variations in Europe in the needs of the different sec- 
tions that my inclination has been very strongly that it should be a 
matter of State law, and I would not even advise the farmers to wait 
for a State law. I would advise them to go ahead and form these 
unions, without laws; but if they wait for laws, let us have State laws. 

But let us connect up with the Federal reserve system, so as to 
have an outlet during harvesting and thrashing seasons. 

Mr. Hayes. I would like to ask you just how far your idea goes? 
Do you refer to those little credit unions or do you refer to organiza- 
tions among farmers for the sake of getting credit generally — short- 
time credits ? 

Mr. Coulter. I think the next step is to secure personal credit 
generally. Many farmers now own their own small banks. I think 
they should do that too, the bigger and more prosperous farmers, at 
least. 

Mr. Ragsdale. But in the system we have under consideration at 
this time, it is presumed that the land itself will stand as a guarantee 
of payment, will it not ? 

Mr. Coulter. I am speaking now entirely of personal credit. 

Mr. Hayes. And not land-mortgage banks ? 

Mr. Coulter. No; not land-mortgage banks. 

Mr. Ragsdale. I know. But do you think the States ought legiti- 
mately to govern that system also ? 

Mr. Coulter. No; on the matter of mortgage credit, I am very 
much in favor of national legislation. 

Mr. Ragsdale. That is what I wanted to draw out. 

Mr. Coulter. Yes. 

Mr. Ragsdale. Whereas, in the case of personal credits you think 
the States, on account of differing conditions, ought to control, you 
believe that in the case of land-mortgage loans the Federal Govern- 
ment should contro 1 and legulate them? 

Mr. Coulter. Yes; I feel that very strongly. 

Mr. Ragsdale. Under the conditions you have learned in this 
country and abroad, do you not think that in order for them to be a 
perfect success, the Government must extend some aid itself ? 

Mr. Coulter. No; I feel very strongly that it is absolutely unneces- 
sary, in the first place, and it would be a very bad thing if it was 



RURAL CREDITS. 175 

necessary; I am glad it is not necessary. I would feel sorry if our 
country was at the point where that was necessary. 

Mr. Ragsdale. If those communities in which there is a heavy 
demand for money, greater than the local supply can furnish, how 
would you get this money in those communities ? 

Mr. Coulter. I would let the bank organized in those communities 
for that purpose issue bonds, properly secured by mortgage, and let 
those bonds go to markets where the money is available. 

Mr. Ragsdale. Do you mean banks that would receive deposits ? 

Mr. Coulter. I think it would be very doubtful whether they 
should be regular deposit banks. 

Mr. Ragsdale. Then they would not be banks, in the ordinary 
acceptation of the word in this country, would they? 

Mr. Coulter. I think they might be called banks, and given a 
special definition. 

Mr. Hayes. Let me say that this bill provides for such banks that 
are not banks of deposit. 

Mr. Ragsdale. Yes; I know. 

Mr. Hayes. And that is what the bill calls them. 

Mr. Ragsdale. I do not think they ought to be called banks. 
They might be called trust companies or something of that kind. 
My idea is that in the national system there ought to be a clear dis- 
crimination in the use of terms that apply to those institutions which 
receive deposits and those which do not receive deposits. 

Mr. Platt. Do you not think the word " trust" is in rather more 
disrepute than the word "bank" nowadays? 

Mr. Ragsdale. It is not a question of that, but it is a question of 
devising a system that would be as easily understood as possible. 

Mr. Coulter. Of course, you could call them "companies." 

Mr. Woods. Dr. Coulter, you spoke about connecting these per- 
sonal credit societies with the national banking system. Would not 
that require national laws to do that ? 

Mr. Coulter. I think so; and that is the one point that I am not 
clear on myself — as to what should be done. In fact, I have been 
studying the matter for some time; with Mr. Moss, Senator Fletcher, 
and others I have been studying that, and have been trying to frame 
some kind of a scheme whereby these little local banks might organize 
a national bank which could come in as a member bank in the Federal 
reserve system, but I have nothing to recommend on that at the 
present time, except that were it not for the desirability of having 
these local credit unions, or whatever they are called, attached in 
some way to that system of Federal reserve banks, I would prefer 
them to be developed by the various States, under the State laws, or 
without any laws. But in order for them to have the advantage of 
the Federal reserve system which has just been established I think 
it may be necessary or wise for some national legislation to make it 
possible for them to organize a national bank which would become a 
member bank. 

But that is a matter I had not intended to be drawn into. I have 
discussed that with Mr. Moss and we have been trying to work 
out something. I have not any final judgment on it. 

Mr. Moss. Dr. Coulter, if you will excuse me a moment, I wish to 
say for the record that the subcommittee of the commission feels 
that it is necessary to have some such legislation. 



176 RURAL CREDITS. 

Mr. Coulter. Yes. I think that all feel that it is necessary to get 
some connection, but how to bring it about and whether it is neces- 
sary to organize these little credit unions under Federal act, or 
whether — I made this suggestion for what it is worth some days 
ago — the national-banking act might not be merely amended so as to 
provide that instead of from 7 to 10 natural persons joining to form a 
national bank, that the same number of credit unions, or farmers' 
credit societies, or any other similar organizations, might also or- 
ganize to form such a national bank, is the question. But if you 
did that, you would have to regulate these credit unions. 

Mr. RxVGSDale. I was going to say that would open the door so 
wide that it would not be advisable. 

Mr. Coulter. It goes back to the question of providing some- 
thing; but I have studied that subject, and have not reached any 
final judgment on it. I think there must be some method to connect 
them up, but how I do not know. 

Mr. Platt. The States have got to do something to take care of 
the small banks they have now, with $5,000 or $10,000, that are shut 
out of the Federal reserve act. 

Mr. Coulter. That is another thing I wished to discuss. There 
are at the present time between 7,000 and 9,000 State and other 
small banks with a capital of less than $25,000. My own feeling is 
very strong — and I have expressed it to the commission that has 
been studying this subject — that there should be provision made for 
national incorporation of banks down as low as $10,000 capital. I 
think that they ought to have the advantage of connection with the 
Federal reserve system. We have written hundreds and hundreds 
of letters to those small banks, and it is perfectly clear that they can 
not afford to increase their capital to $25,000. The communities 
are such that they can not afford to do that, and therefore they can 
not go into the system. 

Mr. Platt. Some of them are very similar to those people's banks 
in Europe ? 

Mr. Coulter. Yes. 

Mr. Platt. And some of them are almost purely farmers' banks ? 

Mr. Coulter. Yes; some of them are almost purely farmers' 
banks, and I know some where the stock is all owned by farmers. 

Mr. Hayes. There is nothing to prevent the States from organ- 
izing and taking care of those banks, the same as the Nation has 
provided for the Federal reserve banks. 

Mr. Coulter. Well, but there you fall into 48 kinds of laws. 

Mr. Hayes. That is true, but the conditions are different in the 
various States. 

Mr. Coulter. And yet if you take the digest of the State banking 
laws, some of the good digests and examine them, you will find that, as 
an illustration, State banks were allowed to lend money on real estate; 
and yet you study the laws in all the States and the practices in all 
the States, and they have imitated the precedents of the national 
banks. Even if you authorize them by law to do a certain thing, 
they know in practice they must follow the general system of national 
banks, because they must deal through national banks and have 
finally to turn to them: they know that their paper on land is not 
good; they are modeled after the national banks in their business 
forms and business methods and you can not get away from that. 



RURAL CREDITS. 177 

Mr. Hayes. That is sound and proper. 

Mr. Coulter. I think it is, and therefore I think they ought to be 
allowed to incorporate with a Federal charter down to $10,000. 

Mr. Woods. Referring to those associations in foreign countries, 
you spoke about the fact that the local credit associations were obliged 
to get money from outside sources ? 

Mr. Coulter. Yes; sometimes. 

Mr. Woods. Do they rediscount their paper or borrow on their 
own note directly, or issue bonds? 

Mr. Coulter. Generally they borrow directly, or rediscount their 
own paper. 

Mr. Woods. Yes. 

Mr. Coulter. But it is interesting to know that in Italy the idea 
of issuing bonds arose 20 years ago, but instead of the little locals 
issuing the bonds they went to the savings bank or people's bank and 
gave their paper as security, and these savings banks or people's banks 
issued bonds. 

In Hungary a the present time I believe that the reason that the 
Hungarian Government is so active is because they have to get much 
of the money necessary from other countries and provide for central 
institutions to issue the bonds. The locals, I think, have never issued 
bonds, but rediscount their paper, or borrow directly. 

To summarize, on the personal credit side then, if it were possible 
to get the small State and county banks under Federal charter, it 
would be, it seems to me, a long step in the right direction, and then 
if the little locals were established all over the country, I think that 
would be the second big step. 

Now, I do not think that it is necessary to try to connect them up 
with the Federal reserve system until you have some of them. 

It occurred to me that after we found a way to adapt them to our 
needs in this country then they might be federated, in some such 
way as we have provided now for the national banks, and in that way 
the connecting link be provided. 

Mr. Hayes. But if the national bank was allowed to organize 
down to $10,000 capital, those little banks in the country would 
take care of your unions, would they not ? 

Mr. Coulter. Probably they would, and they could get all their 
connections there. 

Mr. Hayes. Surely. 

Mr. Coulter. But, as I say, I do not know what is the best way. 
I do not like a national law to create these little credit institutions 
of so many different kinds, because, as I say, in many districts 
they should do the buying and the selling for the farmers, etc. But 
that is a point I have not any final judgment on. 

I wish to add that throughout Europe, probably in every country — 
and this is a thing that Mr. Moss suggested along this line — just the 
same as you have now through your Federal reserve act organized 
a definite system, so that all of these national banks all over the 
country may work together with big centrals, so. all over Europe, 
the little credit unions have organized into federations. They are 
organized into federations, so that they have clearing houses and 
centrals, and then bigger centrals. So that they have independently 
done the very thing in Europe which you have done here in the 
United States by your legislation. 

37031—14 12 



178 RURAL CREDITS. 

Mr. Platt. Arc these credit unions organized in such countries 
as the Balkan States, or Turkey \ 

Mr. Coulter. Yes; they are organized there, as I understand. 
I did not get down to the Balkan States, although I got close to the 
border, in Hungary. But off among the Magyars, and among the 
Croatians, I was up among the various Russian groups — among the 
Polish people, both the Austrian Poles and the Russian Poles. I 
found these unions everywhere; and I found them among the little 
Russians, who are considered the most illiterate Russians; and 
some of those unions were 15 or 20 years old. So they are not 
barely starting; they are old enough to do business. And they 
have worked out 

Mr. Seldomridge (interposing). Dr. Coulter, do you think it 
would be practicable for the Government to give the country an 
object lesson in the matter of organizing a few of these unions in 
different parts of the country and see how they could be worked out 
with actual supervision ? 

Mr. Coulter. I think it might not be out of place for the Depart- 
ment of Agriculture to do that very thing. 

Mr. Hates. You mean, assist them to organize ? 

Mr. Seldomridge. I do, yes. 

Mr. Coulter. In other words, show them how, send out demon- 
strators. 

Mr. Seldomridge. Yes; send demonstrators abroad to European 
countries and get the facts winch Dr. Coulter has gathered together 
here and put the Government officials in charge of one of these organi- 
zations for a few months and demonstrate practically just what 
could bo done. 

Mr. Hayes. That is a splendid idea. 

Mr. Coulter. I think such demonstration should be made I 
think it is just as legitimate for the Department of Agriculture to 
teach the farmers how to get money at 6 per cent, instead of 12 per 
cent, as it is to show them how to make two blades of grass grow 
where one grew before or to get two drops of milk where they got 
one before. 

Mr. Platt. Could that be done under the Smith-Lever bill which 
has just passed ? 

Mr. Coulter. Not unless the Department of Agriculture takes up 
this phase of work. They have not done so in the past, but I think 
it would be admirable if they could and would do so. 

Mr. Bulkley. To what extent are these European unions organ- 
ized under national law and to what extent under provincial or local 
law? 

Mr. Coulter. Practically not at all under national law ^except in 
some of the newer countries, where they are commencing to be 
introduced. They arose spontaneously, either under local or pro- 
vincial laws, or without any law. In Italy Mr. Wollemborg just got 
one started in his own little community because he had studied what 
they had been doing with them in Germany, and the system spread 
over Italy. 

Mr. Bulkley. The land-mortgage banks are also under local laws, 
are they not ? 

Mr. Coulter. Yes; the land-mortgage banks are generally under 
local law, I think you may say, although in some countries 



RURAL CREDITS. 179 

Mr. Ragsdale (interposing). Pardon me, Dr. Coulter; but under 
the term ' ' local law ' ' what do you mean ? 

Mr. Coulter. Provincial law. 

Mr. Hayes. The law of the Province? 

Mr. Coulter. The Province, yes. For instance, in Germany, it 
would be the different States 

Mr. Ragsdale. Now, to what extent does either the provincial or 
the local law in those countries control the financial situation or the 
issuing of money in that particular Province ? 

Mr. Coulter. Do you mean the personal-credit instruments? 

Mr. Ragsdale. I mean in the issuing of money. 

Mr. Coulter. Every big country has its own personal credit sys- 
tem. So the Provinces or States have nothing to do with the personal 
credit. 

Mr. Platt. Do you mean nothing to do with the issuing of cur- 
rency ? 

Mr. Coulter. Yes; with the issuing of currency. 

Mr. Ragsdale. That is what I want to develop. There is an 
entirely different condition which obtains there from that which 
obtains in this country. Does it not seem that where all the money 
comes from a national source they have got to look to that source 
for the issuing of money, and also for the final handling of the credit 
system ? »'H 

Mr. Coulter. I think in this country the issuing of mortgage 
bonds, or whatever they are called 

Mr. Ragsdale. Yes. 

Mr. Coulter (continuing). Should be entirely under Federal act. 
That is so that they will all be of a definite type; the National Gov- 
ernment should specify a definite type. 

Mr. Hayes. A standard. 

Mr. Ragsdale. Yes; a standard. And do you not think there 
ought to be some legislation that would provide for their acceptance 
in the Treasury upon some terms which would be specified, just as 
other paper ? 

Mr. Coulter. I think so. 

Mr. Hayes. Do you mean for security ? 

Mr. Ragsdale. Yes. 

Mr. Coulter. But in Europe you find a great many provincial 
laws; you find even with the land banks all sorts of local practices. 

Mr. Ragsdale. Yes. 

Mr. Coulter. On the other hand, in Italy, for instance, aside from 
the savings banks, which is a lot of mortgage business, the institu- 
tions are under national law; but they apply to specific provinces; 
for instance, it will be a law for the Province of Latium, or the Basili- 
cate, or Sardinia. In Russia there is just one big national system for 
the mortgage business. In France there is practically one big mort- 
gage institution. 

Mr. Ragsdale. Yes. 

Mr. Coulter. In Germany they are scattered. Belgium has both 
the mutual and the joint-stock institutions. 

Mr. Ragsdale. Yes. 

Mr. Coulter. Holland has about 70 joint-stock banks. 

Mr. Platt. Dr. Coulter, Mr. Moss yesterday, in speaking of insti- 
tutions that were allowed to loan both in the cities and in the country, 



180 RUKAL CREDITS. 

said that they practically never made loans in the country, or very 
rarely did so. Do you think that is due to the fact that the growth of 
the cities has been a pronounced phenomenon of recent times ? Do 
you think that movement is likely to be permanent? For instance, 
if farming should become relatively more profitable, would there not 
be a tendency for organizations like building and loan associations 
to loan on farms rather than on urban property? 

Mr. Coulter. If that time w r ere likely to be close at hand, it seems 
to me 

Mr. Platt (continuing) . Or do you think the growth of cities can 
keep on at its recent rate without any check; do you not think that 
is a condition that is going to pass away ? 

Mr. Coulter. Well, farming is constantly being done more effi- 
ciently, with the improvement of machinery and farm methods — 
take for instance, if you introduce a cotton-picking machine in the 
South you could send 1,000,000 negroes to the cities in a few years. 

Mr. Platt. In other words, you think the people have been driven 
to the cities, rather than going there of their own accord ? 

Mr. Coulter. Well, frequently they do not need to stay in the 
country, and there probably is not work there for them. And then 
there is another thing ; work which was formerly farm work has now 
become city work. Farmers used to make all of their cider and 
whisky and beer. 

Mr. Brown. And shoes. 

Mr. Coulter. Yes, and their own shoes and their own clothing. 
My grandfather did, in my own day; I have seen him do it. 

Mr. Hayes. I have seen the same thing. 

Mr. Coulter. And I am young, too. But now we are getting to 
where what w T as formerly farm work is now done in the cities. As 
that continues, the country people will go the cities to do what was 
formerly farm work. And then, in addition to that, the work w r hich 
is done on the farm is being done so much more efficiently, that that 
releases people from the farm. And although I do not like the move- 
ment toward the cities at all — I do not think it is the best thing for 
the country — still it looks to me to be a very definite tendency, and 
it seems to be going on. In the last 10 years the farm population 
of this country has increased only 10 or 11 per cent, and the city 
population has increased 35 per cent. 

Mr. Hayes. Is that not owing largely to immigration, which goes 
almost entirely to the cities '. 

Mr. Coulter. That accounts for part of it. 

Mr. Platt. But the same thing is true of Europe. 

Mr. Hayes. But not to the same extent. 

Mr. Coulter. I think nearly to the same extent. I was dumb- 
founded by what I learned over there. There was city after city in 
Russia, bigger than the city of Washington, and yet I had never 
heard of those cities. I would tell the people I wanted to take a 
train to-night and go inland to the big center of agriculture; and I 
would ask if there were any towns oil" there that I could stop at in the 
morning. They would probably name three or four and when I 
asked them the size of these towns they would say the}' had 400,000 
or 500,000 population. And I confessed my absolute ignorance. 
And there is Russia, which has great cities, thriving cities, beautifully 
lighted with electric lights, with street car systems, and great fairs 



EUKAL CREDITS. 181 

being held as big as any of our great State fairs, and all that sort of 
thing. I confess I was amazed. And it seems to me that people all 
over the world are going to the cities to do the work that used to be 
done in the country. 

Mr. Ragsdale. Do you know what the rate of increase or decrease 
of the cities and country population has been in Canada during the 
last 10 years ? 

Mr. Coulter. I do not know. I could look it up. 

Mr. Platt. Would you say that conditions in Russia, generally 
speaking, are more nearly like those in the United States than those 
of any other country in Europe ? 

Mr. Coulter. Yes; in many respects. Germany, for instance, has 
65,000,000 people and is not as big as Texas; that is to say, it is very 
thickly settled; so it is with France and other countries; but Russia 
is a great, big country, like this, comparatively sparsely settled. 

Mr. Platt. And with a great many different nationalities ? 

Mr. Coulter. Yes; and with a great many different peoples; and 
you get off in the interior of Russia and you find as bad roads as 
anything we have in this country — I do not believe they are worse. 

Mr. Hayes. They could not be worse than we have in some places. 

Mr. Coulter. It has great stretches of country, people scattered 
all over it; it is an immense, thinly settled country, still in the rough 
state, it seems. They have not built up industries, I think, as far as 
we have; so they have probably had a smaller movement toward 
the city. Still, they have a great many big, fine towns and business 
centers doing an immense business. I found big bank buildings there 
as fine as anything in the United States — off in the center of Russia, 
where we read about peasant revolts. There are a few of those, of 
course. 

Mi'. Platt. Generally speaking, are the people of Russia not as 
active in pushing ahead and apparently not any more hampered by 
the Government than people in other countries ? 

Mr. Coulter. I think the great mass of peasants are less educated 
than in other countries. In that respect they are far behind. I think 
it is 67 per cent of the peasants of Russia that can not read and write. 
They say that themselves. But they have also started to establish a 
complete system of schools, and within six or seven years every coun- 
try community of Russia will have a school and every child will be 
in the school, so there is not much difference in that way. The people 
are generally physically a great, big, fine, well-built people and a 
good neighboring people. 

Mr. Seldomridge. Is the land entailed there? 

Mr. Coulter. If you are going into the land question, you will find 
that they are trying to do the things that we have been trying to do 
in this country. That is to say, we came into this country and killed 
off the Indians and distributed the lands to the people. Over there 
the people were already in the country and instead of killing off the 
Indians 

Mr. Seldomridge. They killed off some of the nobility, didn't they ? 
[Laughter.] 

Mr. Coulter. Instead of killing off the nobles they decided to make 
the people pay for the land through a period of 50 or 60 years and pay 
the nobility, and then let the nobility invest the money in other ways, 



182 KURAL CREDITS. 

or spend it, if thoy wanted to. Those that spent their money have 
gone to the dogs, and those that did not spend it have maintained 
smaller estates. 

Mr. Hayes. Is this going on in Russia now? 

Mr. Coulter. Yes. Russia has a magnificent set of land-mortgage 
banks. They have the nobility land-mortgage bank, which takes 
over the estate from the no' les, and then they have a sister society 
that divides the estate up and sells it in small lots to the peasants, 
and gives them a long period of time in which to pay for the land; 
and the land is gradually passing from the nobility to the peasant, 
except that each nobleman retains a considerable estate. 

But away off in the heart of Russia, it was not uncommon to see 
a big farmer, one of the noHlity, and go into Iris house — and his little 
girl would greet me in English and say she wanted to see me because 
she wanted to know what an American looked like; the children have 
English governesses and learn English in that way. Many of the 
nobility are selling off their land, and are using the money in part to 
educate their children. The children are generally able to speak 
English, French, and German. 

Mr. Platt. In general progress, Russia is going ahead as fast as 
the United States, is it not ? 

Mr. Coulter. I really think so. 

Mr. Platt. And perhaps a little faster ? 

Mr. Coulter. I stopped in a farmers' club in the town of Kieff, 
which we have all heard of on account of an alleged ritual murder. 
I stepped into the club there, and one of the officers spoke to me in 
good English, and said, "By the way, according to the papers, you 
are from Minnesota. Our society maintains an expert in Minnesota." 
And he gave me the name of the expert and his address in Minneapolis. 

He said that the business of the expert was to find out everything 
that our experiment station covered in Minnesota, and send word 
to them about it. Now, there is a farmer's club in Russia with an 
expert watching us so as to report to them what we do. 

Mr. Hayes. There are similar climatic conditions ? 

Mr. Coulter. Yes. 

Senator Hollis. We ought to have a farmer in Russia watching 
fto see what they were doing. [Laughter.] 

Mr. Coulter. Our Government, of course, maintains experts 
around the world, but our farmers' organizations do not. But over 
there the Government has not in the past been doing much along 
that line. They are starting now to establish all lands of experiment 
stations, extension work, etc. 

Mr. Seldomridge. Have they good railroad facilities ? 

Mr. Coulter. Yes; good railroad faciU ties. 

Mr. Platt. Yet we have not any treaty with Russia, and do not 
do any business with her. 

Mr. Coulter. No; they poked a good deal of fun at me about my 
ignorance of Russia. The prime minister of Russia, who resigned a 
few days ago on account of ill health, said: "You Americans are a 
marvelous lot of people; you are so busy over there with your own 
affairs that you have not time really to look into conditions in other 
places, and know how to deal with them." He was quite good- 
natured about it; he laughed about it. 



EURAL CREDITS. 183 

Now, gentlemen, we have only touched the question of personal 
credit. Probably I should not have gotten started on that subject. 
Most of my studies, so far as national legislation is concerned, bear 
upon land-mortgage credit; and I would like to speak on that sub- 
ject at some length later. 

Mr. Bulkley. The hour of adjournment having arrived, I should 
like to know the pleasure of the committee upon this question: I 
should like to say that under the plan which Senator Hollis and I 
have mapped out, we wanted to get through with what the members 
of the United States commission had to say this week, as we had some 
other plans for next week; and if it would be agreeable to the com- 
mittee, we would like to have the committee meet again to-morrow 
morning, although that is an extra day. 

(Thereupon, at 1.10 o'clock p. m., the committees adjourned until 
Friday, February 20, 1914, at 10.30 o'clock a. m.) 



FRIDAY, FEBRUARY 20, 1914. 

House of Representatives, 

Washington, D. C. 
The committee convened at 10.45 o'clock a. m., Hon. Henry F. 
Hollis presiding. 

Present, Senator Lee and Representatives Bulklcy, Brown, Stone, 
Seldomridge, Weaver, Ragsdale, Hayes, Woods, and Piatt. 

STATEMENT OF JOHN LEE COULTER— Continued. 

Mr. Coulter. I want to say a few words, taking not more than three 
or four minutes, further, concerning personal credits, before leaving 
it. I want to give not so much my own views as to let the committee 
know what the views of two or three other people may be and why 
certain movements are on foot. 

Mr. Moss turned over to the committee a resolution introduced by 
the farmers of Nebraska. I know a great deal about the movement 
that resulted in that resolution. Sir Horace Plunkett, the great in- 
ternational authority on this whole question, spoke to the farmers in 
Nebraska. The whole tenor of his talk was that so far as personal 
credit was concerned, it would be wise not to go too rapidly in the 
establishment of either a system under Federal legislation or other- 
wise; that they had best get together and understand each other 
and talk the thing over and thrash it out and get acquainted with the 
problem. But Sir Horace Plunkett did not advise against either a 
State or a National system of legislation for land-mortgage banks of 
any kind. In fact, he wrote a very short article for one of the 
Nebraska farm papers, that is very brief on that point; and I talked 
with him here in Washington afterwards, and I know that the 
Nebraska resolution came out of his talk there and also the talk of 
Mr. Jones, from Colorado, who was at that same meeting. I have 
letters from Mr. Jones to the same effect. 

The whole point there is this, that the Nebraska resolution pertains 
to personal credit and is based upon the recommendation that the 
farmers go slow in going into that. Sir Horace advised them]- to 
proceed slowly on that one point. 

Mr. Woods. What experience has Mr. Plunkett had to give him 
actual knowledge of the needs of the people who desire personal credit ? 

Mr. Coulter. Sir Horace has, I think, the experience which would 
make it possible for him to speak with some authority both at home 
and in this country. He does not know hardly which to call home. 

Mr. Woods. What is his experience ? 

Mr. Coulter. In the first place he lived in this country with the 
ranchers and among the farmers of the West, on account of his health. 
He was in very poor health for 10 or 15 years and lived&with the 
184 



RURAL CREDITS. 185 

frontier ranchers. He was a well-to-do man, sufficiently well-to-do 
so that he was able to travel and live around among the farmers 
generally and study the tenant situation. 

Mr. Woods. But he never hnd to make a living for his family off 
of a tenant farm ? 

Mr. Coulter. No; but he has lived with those people under condi- 
tions so as to thoroughly study their needs. This resulted, on his 
return to Ireland, in the establishment of a department of agriculture, 
in his helping the poor tenant farmers establish little credit unions, 
and in the establishment of a service similar to the service which has 
just been started in the Department of Agriculture here. He did that 
beginning back in 1885, I believe. 

Then he has gone right out and worked with his workers and has 
given his personal fortune, of a good many thousand dollars, to help 
the poor tenant farmers, who had absolutely not a cent, establish these 
little credit unions. He sat with them at their meetings, he helped 
them with their books and reports, and has gone through all the 
stages of trouble with them. They came to him if they wanted to buy 
a chicken sometimes and asked him the best way to proceed, and 
asked if he thought they should get the credit in their little credit 
unions. 

He has also helped to establish cooperative creameries in Ireland 
and helped them to build up little egg marketing societies, and he has 
dealt with the problem in such a minute and detailed way that he 
understands even the matter of classifying the eggs in the little egg 
marketing societies and understands the way of separating the rots 
from the cloudy and the musty eggs and in getting the right colors 
together and the right sizes together, and when to sell by the pound, 
and when to sell by the egg, and so forth. And he has studied the 
whole thing thoroughly from the ground up. 

I really believe he understands the position of the poor struggling 
tenants as well as any man either in official or unofficial circles in this 
or any other country possibly could. There is always a question 
whether any man who has a high position can understand the struggles 
of the poor fellow in the ditch. I think it is a very great question 
whether any of you gentlemen here can fairly and really understand 
the questions of the poor fellow who has struggled for years; but if 
that is possible, I believe Sir Horace Plunkett will equal in that respect 
any man in any of the States in an understanding of the problem. 

It is because of his knowledge of the subject that he advises the 
way he does with reference to these little credit unions, and that is 
the reason he talked to the Nebraska farmers the way he did. He 
knows if they jump into it head over fist, as he expresses it, because 
it looks like a grand scheme, that unless it is pretty carefully super- 
vised by proper inspectors, and so forth, the thing may fail and result 
in another quarter of a century of setback. He was in this country 
during the Granger and Alliance days, and knows how a too enthu- 
siastic visionary plan may result in a flat jailure and a quarter of a 
century's delay in getting things going gradually. For that reason 
Sir Horace Plunkett advised the Nebraska farmers, on this matter of 
personal credits, to go slow; to get together and talk about it and 
study it and get the idea and to be prepared to act; at the same time 
to organize other kinds of marketing societies. 



186 RURAL CREDITS. 

Now, that judgment was based upon a further point which ought 
to bo mentioned. The point is this : With these little credit unions — 
each very small but large in numbers if the farmers generally start to 
organize them — will the expense of supervising and inspection, of 
seeing that they aro run right and do not fail — will that expense not 
be so great as to make the thing nonproductive and result in such a 
curtailment of inspection as would leave the credit institution in the 
hands of untrained farmers, not accustomed to do this sort of business? 

I would suggest in this connection that there is a lot of weight to 
his argument, although I am heartily in favor of these farmers 
starting these credit societies. I know, for instance, that a recent 
study was made in one of the most progressive States of the Union 
with reference to the country school system. The school commission 
felt that there was such a poor financial arrangement for managing 
the country schools that some reform was necessary. An examina- 
tion of the records of 200 or 300 school treasurers or the clerks of 
the school boards was made, and I think that they lound that 70 
or 80 out of each 100 such records were full of errors. Frequently 
the school clerk or treasurer had paid out $10 to $100 or $150 from 
his own pocket, unknowingly, for the support of the school in addi- 
tion to the local taxation contribution. In other instances the clerk 
or treasurer had, equally unknowingly, taken from $10 to $300 of 
the school money by errors in addition and errors of all sorts. There 
is no inspection and no supervision and they just do the best they 
can. 

Now, because of that lack of training in arithmetic and in business 
methods on the part of farmers, my belief is that the really big start 
must be through the rural schools, through education, through 
training the boys and girls in the arithmetical part of the question of 
partial payments and the value of farm products, and so forth, and 
then when they become young men and young women you will have 
a thoroughly trained set of men and women to manage these insti- 
tutions. In the meantime, of course, I think many farmers could 
go on and organize and familiarize themselves with the business. 

Now, the explanation of the Nebraska resolution applies equally to 
the Colorado resolution, because Mr. Jones was at the Nebraska meet- 
ing — Mr. Jones, of Colorado. He was there and heard Sir Horace 
Plunkett. He understands the subject very thoroughly, because he 
is a Colorado banker and a thoroughly successful one; also because 
he was a member of the American commission which studied in 
Europe. He is able to use his own position as a banker to discourage 
the idea of farmers going into something that might result in failure; 
and that is also the position taken by the very best possible friends 
of the farmer — men like Mr. Plunkett. The Colorado resolution, then, 
is a direct side result of the Nebraska meeting, and neither of these 
has anything to do with the land-mortgage-credit proposition. In 
fact, Mr. Jones, from Colorado, is enthusiastically in favor of it, but he 
has certain recommendations to make concerning long-time credit, 
adopting, as ho does, practically all of the details of the suggestions 
of the United States commission, except that he would like to have a 
central bank for each State tacked to it to issue the bonds, and I think 
he is justified in that position in his State. I am sorry that the mem- 
ber of your committee from Colorado is not here (Mr. Seldomridge) . 



RURAL CREDITS. 187 

I believe that it is a fact that the far Southern States and the moun- 
tain States would find it decidedly to their advantage to have some 
kind of a central institution (at least a State institution) to look after 
the bonds which their local institutions may issue. They are forced to 
come to the eastern and northern markets for their money. In order 
to get funds they have to go to the North and East. It is not sur- 
prising, therefore, that a man from the mountain States or from the far 
Southern States, desiring more credit assistance than his own State 
affords, should want to have a State bank or a central bank. It might 
not even be bad, from their standpoint, to have the National Govern- 
ment guarantee bonds from those sections, placing them on the same 
basis as those from the old-settled parts of the country, because it 
would bring their securities up to a par with those of the old-settled, 
stable districts, where values have established themselves — where 
values have proven themselves and there are fewer uncertainties. 

The position, then, of the Colorado people was that it would be wise 
to go slow in the matter of further personal-credit legislation; that 
land-mortgage legislation should provide for some sort of a central 
institution to take care of the bonds issued by banks in the localities 
where the local investors and buyers and lenders do not suffice. 

Mr. Woods. Could we get copies of Mr. Plunkett's speech at that 
time, Mr. Coulter? 

Mr. Coulter. I shall try to get copies and send them to the mem- 
bers of the committee. 

Senator Hollis. I have a copy of the address I think he made to 
your commission. Is that a commission report? 

Mr. Coulter. He delivered an address to the commission with his 
recommendations and he also delivered an address directed to the 
farmers of Nebraska. 

Mr. Woods. You think this resolution was the result of that talk? 

Mr. Coulter. Yes; I know it was, in fact, because I have talked 
with people who asked me what I thought of Sir Horace Plunkett's 
address. 

Mr. Woods. Then in order for us to understand what was meant 
by this resolution it would be well for us to know what was in his 
speech ? 

Mr. Coulter. It would be well. My knowledge of it came from 
my talk with him afterwards, before he left for Ireland. He is now 
in Ireland trying to establish harmony between the north and south 
of Ireland. 

land-mortgage credit. 

Taking up now the question of long-term credit, I would like to say, 
first, a few words with reference to the need, if there is a need. I 
believe that there is a very great need, and I believe that there are 
several reasons that might be given to show that there is the need. 

The first point is that in the United States as a whole only about 
one-half of the land surface is in farms. Now, much more would be 
brought into farms if there was a system of long-term credit, which 
would make it possible for the farmer to take the land and bring it into 
farm use. If this land was all Government land, you might say that a 
long-term credit scheme would have little place so far as bringing 
more land into farms is concerned. But we must remember that the 



188 RURAL CREDITS. 

National Government, in its early days, granted hundreds of millions 
of acres to the railroad corporations and that lumbering corporations 
have millions of acres of forests. Now, much of this is cut-over land. 
Many investors have purchased large tracts of land which now may 
be purchased from them. 

All told, I know from some study of that point there are literally 
hundreds of millions of acres of land which could be purchased, 
which is on the market for farmers, or young men wishing to become 
farmers, had they some way of borrowing and paying in a long period 
of time for the land purchased. I believe that some kind of a system 
of long-term mortgage credit would result in bringing much more 
land into farms. That would be good for the country from the 
standpoint of the consumer who wants food and clothing and bev- 
erage materials. It would be good for the country from the stand- 
point of our young farmer because he wants an opening; it would be 
good for the country because it would get out of the hands of these 
great holding corporations, as they might well be called, the lands 
which they now possess; it would be good for the country because 
it would give employment to this great mass of unemployed we some- 
times hear about. From every standpoint it seems to me it would 
be good for the country to have some scheme of long-term credit 
in order to bring land into farms which is not now in farms. 

Second, if we take all of the land now in farms, the last Govern- 
ment report shows only about one-half of it is improved. In other 
words, the present farmers of the country, six and a third million in 
number, own and operate great tracts of land, only one-half of which 
is improved. 

Mr. Hayes. You mean by "improved" actually tilled? 

Mr. Coulter. Actually tilled or in hay or pasture and rotation or 
lying fallow. 

Mr. Ragsdale. Used for regular agricultural purposes? 

Mr. Coulter. For regular agricultural purposes — even improved 
pastures and hay land. 

Mr. Hayes. What is the balance? 

Mr. Coulter. The balance of it is woodland, swamp land, and 
some of it is stumpy land and some of it is stony, and there is some 
of it that is wild grassland where the hay is used as an outlying 
pasture. 

Mr. Ragsdale. You do not count that for regular agricultural 
purposes ? 

Mr. Coulter. Not unless it is regularly cultivated or plowed in 
rotation, or regularly mowed as improved grassland would be. 

Mr. Platt. A great deal of that land, however, is put to a really 
useful purpose. 

Mr. Coulter. But poorly so. 

Mr. Platt. What would you say if they have land in forest ? 

Mr. Coulter. I think the woodlands and forests are very poorly 
used. I think it could be highly developed. For instance, I have 
in mind a few hundred acres in a certain farm where the timberland 
is used for protection for the stock, and at the same time makes good 
pasture land out of it. But the farmers can not do that without 
money or credit. My idea is that if the farmers could borrow money 
for a long period of years, paying it back gradually, they could clear 



RURAL CREDITS. 189 

the stump land, the cut-over land, could remove the stones; drain 
the swamp lands; in areas where irrigation is necessary they could 
irrigate; they could either bring the water on or take the water off 
and improve the land which they now have in farms. 

I think it would be easily possible to bring several hundred millions 
of acres into bearing in a good active way if the farmers could secure 
this money. 

Now at that point I want to bring out a suggestion I have never 
heard made, and it is this, that the biggest defect in our present 
rural-credit system forgets that the farmer must make out of the 
farm absolutely everything that he needs. He has not any out- 
side income. Building and loan associations expect laborers who 
earn their money outside to bring money into those enterprises, 
and all other financial agencies and institutions generally depend 
upon the people to bring in more money. I have belonged to a 
variety of associations where you might pay in a small amount, 
premiums on insurance or little amounts per year, and all of it comes 
from the outside. The farmers must pay for the farm from the farm 
and a system of credit must be evolved so that he will be given a 
long enough period of years to get out of the farm sufficient to pay 
for the farm; and each generation must pay for the whole agricul- 
tural property. It must pay for itself, each generation. 

Now, that is a revolving process and any system of bringing more 
lands into farms, or the improvement of land now in farms, must 
contemplate that the farmer is going to pay back the loan out of the 
property which is improved. 

I think we need this long time credit for a third reason, and that 
is to improve and make the farm more productive by improved 
equipment on the land which is already improved. That is to say, 
we know that half of the land of the country is in farms and only 
half of that in farms is improved, and that which is improved is only 
about one-half productive, considering what the rest of the world is 
doing. Now we are going to need to double our yield from the 
farm as we go on increasing our population and we must provide a 
system of financing that improvement; farmers must plow deeper, 
and must equip better, must drain better and must provide the best 
methods of doing the work. 

Mr. Hayes. And fertilizing the land? 

Mr. Coulter. And fertilizing the land either naturally or artifi- 
cially. 

Mr. Ragsdale. Have you arrived at any definite period of time, 
as a result of your researches, for which the loan should be made ? 

Mr. Coulter. Yes, sir; I have. I think in this country, a young, 
growing country like this, it is very doubtful whether they should 
be for a longer period than 35 years. I have taken the age of 25 
years when a young man starts in and if you allow him to take up 
to the maximum of 35 years for the period of the loan, it will make 
him 60 years old when the whole thing is paid out. I would like to 
consider that a maximum. And an older man who wants to borrow, 
say, would take a loan for 20 years, and he would pay it out before 
he is ready to retire. 

Mr. Ragsdale. From your researches, what would you say would 
be a fair rate of interest to be charged ? 



190 RURAL CREDITS. 

Mr. Coulter. I think you would have to leave that to general 
competition throughout the world to determine. My first reason for 
saying that is a remark that was dropped to me in Germany. I 
asked a German officer concerning these farm-mortgage institu- 
tions, and I said to him, "How does the farm-mortgage bond 
compete with such bonds as Government bonds, for instance"? 
"Well," he said, "The Landsehaften bonds" — that is, the farmers 
mutual mortgage bonds — "The Landschaften bonds actually sold 
better in the open market than the Prussian Government bonds 
during a recent flurry when the German Government was having a 
little controversy with some of her neighbors." Actually the farmers 
could borrow cheaper than the Prussian Government. Now, I say, if 
that is so, all you have got to do is to create an instrument — a land- 
bank bond, for instance — that is absolutely safe and sound and put it 
on the market and it will sell at par for a low rate of interest. 

Mr. Hayes. Especially if you exempt it from taxation. 

Mr. Coulter. Especially if you exempt it from taxation, which I 
would like to do. 

Mr. Weaver. That was the cooperative credit societies' bonds ? 

Mr. Coulter. Yes, sir; but the others were selling so nearly the 
same that the difference was immaterial. The reason they sold 
better than the others was because, I believe, of the unlimited liability 
of the members who issued them. In other words, besides the prop- 
erty actually mortgaged through these societies, the members in many 
cases also gave all of their property as a final security in order to prove 
that there was no possible chance for loss. 

Mr. Hayes. Do you not think, as a matter of practical experience, 
that 25 years will be plenty of time to allow for the repayment of 
these loans ? 

Mr. Coulter. I think a young man starting in might well be 
given the full period. I think, for instance, of a brother who is 
operating a pretty fine looking farm now. He has not inherited a 
cent, because my good folks are living and still farming, and I hope 
they may long continue to so. There is my brother, he wants to 
raise a family, and he wants to do other things as well as pay for the 
farm. He has 9 or 10 children, and he wants to send them to school 
and he wants to dress them properly, and once in a while he wants to 
take a vacation. And I believe he is right in doing so. Why pay for 
the farm, the whole thing, in the first year or two unless he wants to 
accumulate great wealth? He has no such ambition; he wants to 
live well and he wants to have a farm entirely paid for, so that when 
he is old enough to want to quit, and to have to quit, he can quit. 
And he also wants to educate his children so that when they start 
out they will not be afraid to tackle the same job and do it for them- 
selves and not depend on inheritance. That is a personal, concrete 
illustration, and I think he ought to have 30 or 35 years to do it in. 

Mr. Hayes. Take a case like tins: Here is a farmer who goes out 
and buys a 100-acre farm and he gives a mortgage on it for $50 an acre. 
He has a $5,000 debt. Five per cent on that is $250 per annum, 
and 4 per cent amortization would be $200 more. He would only 
have to pay $250 interest and $200 on the principal, which would 
make an average payment of approximately $425 to be paid out in 
25 years. It would not be that much, but nearly that. Now, a 



RURAL CREDITS. 191 

100-acre farm on that basis is not beyond the reach of the young 
farmer of intelligence. 

Mr. Coulter. No; I think not. He probably could pay it out in 
15 to 20 years. 

Mr. Hates. And maybe 10. 

Mr. Coulter. Yes; maybe 10. But I think you must allow for 
the maximum period, because of the very fact that on many of these 
farms they may have years of some setbacks, and they may have 
other sources of expense. They may want to improve their homes 
and put in running water and things of that sort, and might not want 
to pay it all back at once. And I do not believe they ought to be 
obliged to. 

Mr. Hayes. Of course not, but the question is how much ? 

Mr. Ragsdale. Aside from that, if we are going to bring several 
millions of acres into farming which are not now in cultivation it 
would take some years before any of that land would return anything 
on the investment ? 

Mr. Coulter. That is true. But I want to say here, for the benefit 
of the committee, that the commission that studied it (and Mr. Moss 
is here, and I would be glad if he would correct me if I do not state 
it right) considered for weeks a proposition to incorporate in the 
bill suggested a provision something like this: u Provided, That the 
farmer shall not be required to make any repayment, aside from his 
interest, for a period of five years after negotiating the loan" 

Mr. Ragsdale. I think that is very wise. 

Mr. Coulter (continuing). "Or provided that any bank may sus- 
pend repayment on the loan for a period not to exceed five years." 

Mr. Ragsdale. I think that ought to be mandatory when going 
on to new lands. 

Mr. Coulter. The idea was that the farmers in taking up new lands 
or just starting in might find it all they could do to pay the interest 
the first few years, and also that in some districts a failure of crops 
for two or three years might make it desirable to allow the banks to 
suspend payment for two or three years. However, we did not 
include that in the bill suggested. It was discussed more or less, but 
it was thought possibly that was making it too easy or that it would 
open a loophole, which might not be desirable. But I think it is a 
wise thing to be thoroughly considered by your committee. 

Mr. Hayes. The reason why I am asking these questions is that I 
have a little doubt in my own mind whether it is advisable to encour- 
age a system of going into debt by farmers generally for too long a 
time. Talcing the concrete instance you suggested of your brother, 
is it not very desirable while he is young and his family is young — 
supposing he is raising a family — is it not desirable that he should 
limit, or as nearly as possible limit, himself to pay off that obligation 
to as short a period as possible, so that when his family arrives at 
maturity and he wants to educate his children he will have the 
money to do it with ? And is it not also desirable, from his stand- 
point, to pay the debt while he is young and full of ginger and likes 
to do everything he can, and then after he gets along to 50 years old 
he would like to let up, and it is desirable that he should let up ? 
Don't you think there is a possibility of running on the wrong side of 



192 RURAL CREDITS. 

this proposition and encouraging the farmer to extend his debt too 
far into the future? 

Mr. Coulter. And yet you ought to consider that during the first 
l(t years the farmer has no assistance from his family, you might say, 
and it is all expense, and then when his boys begin to get from 10 to 
15 years old they will be able to help. 

Mr. Ragsdale. But, aside from that, why should the farmer be 
denied what all of the cities and towns and the railroads companies 
and all industrial companies are entitled to; they have a line of credit 
and their bonds are accepted into the Treasury as a basis for currency ? 
Why should the only producing class bo discriminated against? 

Mr. Hayes. That is not the same case; that is a municipality. 

Mr. Ragsdale. He is in the same class as railroads and industrial 
companies, and he ought not be to discriminated against. 

Mr. Hayes. Few of their bonds go beyond 20 years, and 30 at the 
outside. 

Mr. WexWER. Let me make a suggestion that might prove of some 
value in connection with the period you suggest of five years when 
there ought to be no payments on the principal. Now, in Oklahoma 
there was a large tract of land in southwestern Oklahoma belonging 
to the Indians which the Government bought from the Indians and 
sold on partial payments to actual settlers. The farmers who came 
in there came with enough money to make the first payments, and 
did, but Congress for three or four different years was compelled by 
special act to extend the times of the maturing payments of these 
farmers for the reason they were not able to make out of the farms in 
the new State, starting off with the raw land, enough to make the 
payments, and they did not have other resources. 

Mr. Hayes. You would not advocate a uniform compulsory pro- 
vision that no interest should be paid for five years or payments on 
the principal? 

Mr. Weaver. I am simply referring to partial payments on the 
principal. 

Mr. Hayes. I say you would not advocate any ironclad rule of that 
kind, but would merely make it permissible? 

Mr. Weaver. Not an ironclad rule, no; but I think it would be 
very well to provide for it in the bill, because when farmers settle on 
the land is when they need help the most, as Mr. Ragsdale stated. 

Mr. Coulter. My idea was not that the interest should not be paid, 
but the principal. 

Mr. Ragsdale. As a matter of fact, during that period of time, the 
amount of improvement that is going on the land more than offsets 
the payment in the appreciation of the value of the property. 

Mr. Coulter. It is very likely, too. 

Mr. Moss. If the Doctor will permit me, I want to give just an 
instance of my own experiences of the hardships of that kind. I grew 
up in a pioneer farm home and I have not had a university education 
because of the fact when I was at the university taking the course, I 
had to leave to go home to help my father to pay off the mortgage on 
his farm. It was one of the short-time loans, and it is considered in 
that country, of course, a disgrace if a man can not meet his engage- 
ments. So 1 went out of the university at the end of two years 
and went home to help my father pay off the loan. It was some- 



RURAL CREDITS. 193 

thing that could have been paid off very well if he had had personal 
credit or a long-time loan, and I would have had the advantage of a 
university education. And I feel very strongly upon the proposition 
that one of the greatest drawbacks to rural life is this driving and 
grasping on the part of some people and, in fact, the driving of the 
whole family, to pay out the purchase price of the farm along just at 
the time the farmer's family is maturing and going out into life. 
And I sympathize with the Doctor very strongly on that proposition. 

Mr. Platt. Right there, could not the mortgage have been re- 
newed? 

Mr. Moss. Oh, yes; but a farmer in any community has his reputa- 
tion and prestige at stake, and if it is necessary for him to renew and 
continue a loan he loses his standing as a business man and his reputa- 
tion as a farmer; and I think, ordinarily, when a fanner goes into 
debt, he likes to meet the terms of his engagement promptly, which is, 
I think, the rule with any good business man. It is not a question of 
whether he is going to make that much money, but can he constantly 
meet his engagements ? And so if a person knows he has got to pay 
for the farm in five years and he feels that way, he, his wife, and 
children— he drives his whole family to try to make it in five years. 

Mr. Platt. I was wondering if it does not work out in many cases 
just this same way. Ought not the farmers, as other people do, just 
make partial payments on the mortgage rather than to let it stand 
for a good many years ? 

Mr. Hayes. My objection is largely met by a provision in the bill 
that the farmer can anticipate any payments if he chooses. 

Mr. Coulter. It is very desirable to let him pay the debt off at any 
interest day, annually or semiannually. And I believe that farmers 
are anxious enough to get out of debt as a general tiling, so that they 
will pay it if they possibly can. 

Mr. Ragsdale. Just a moment on that. If you were to write that 
into the bond, unless there was some further provision for handling 
them, would not that destroy the very purpose for which the bond 
would be ordinarily sold ? 

Mr. Coulter. It would have to be provided that an equal amount 
of bonds would be withdrawn at par whenever the principal of mort- 
gages deposited as collateral was paid off. 

Mr. Hayes. Mr. Ragsdale was not present when that was discussed, 
and for his benefit I will state that the bond is given b}^ the bank, and a 
payment on the mortgage does not affect the bond at all. 

Mr. Ragsdale. It would, necessarily. 

Mr. Hayes. Not at all. 

Mr. Ragsdale. I do not see how a bond issued with the mortgage 
as security could be loft outstanding after the mortgage had been 
paid. 

Mr. Coulter. The bonds must be retired or bought in at par or at 
the market price in proportion as the mortgage is paid off. 

Mr. Hayes. Mr. Ragsdale has an impression that each bond is 
based on a specific mortgage. 

Mr. Ragsdale. No, I know differently from that, but I mean to 
say it would have to say on the face of that bond that it could be 
recalled, otherwise they could not get the bond back. 

37031—14 13 



194 RURAL CREDITS. 

Mr. Hayes. Oh, no; that would not be necessary. 

Mr. Ragsdale. Unless you put on the face of the bond some such 
provision, you certainly could not retire the bond unless it was at the 
option of the holder. 

Mr. Hayes. You could go out in the open market and purchase 
the bonds. 

Mr. Ragsdale. Then you would have to pay a premium? 

Mr. Coulter. That would be a very good thing. 

Senator Hollis. Does not the bill provide that the bond may be 
paid at any time? 

Mr. Coulter. Yes, sir. 

Senator Hollis. That is a part of the contract, that the bond 
may be paid at any time. That is the difference between the bond 
and the mortgage, as I understand. 

Mr. Coulter. I think also the bonds should bear on the face, 
"Subject to call at par." 

Mr. Ragsdale. That is what I say, that it would have to go on 
the face of the bond and no arrangement in secret not appearing on 
the face of the bond would be good. 

Mr. Hayes. But there would be no provision in the bond for a 
partial payment. 

Mr. Ragsdale. The partial payments would go to the bank, of 
course. 

Mr. Coulter. Another reason why I think we need a system of 
long-time credits is the whole argument in favor of building and 
loan associations in the cities. Farmers need better buildings, not 
only for themselves but for their live stock. Particularly, that is 
true in the North. The reason that the farmer's boys and girls very 
frequently go to the cities is because of the fact that they do not have 
the kind of buildings that the folks in town have. It is not a pleasant 
thing for a farmer boy in the North to have to go out in the winter 
and bring in a few cakes of ice and melt them in an old washtub 
and go out in a cold room and take a bath, when his town neighbor 
can merely go to a spigot and turn it on and get warm water. 

Mr. Hayes. It was still worse on the farm where I was whe^ a 
boy. We had to pull the water out of the well with a bucket. 

Mr. Coulter. Yes, sir; that is still worse. 

Mr. Hayes. I mean to water the stock. 

Mr. Coulter. To water the stock; yes. 

Mr. Weaver. It is not as bad as to have to haul it in barrels ? 

Mr. Hayes. I have done worse than that. 

Mr. Coulter. But we need long-term credits now to make it 
possible for farmers to build up and improve their farms. The farm 
is a home as well as a place of work. I think we need it in order to 
make sure that tenancy does not get too far ahead so that we do no 
get too much tenancy. I do not think we are bad off at the present 
time in this country. In fact, I think we have an admirable con- 
dition for most of the country. The tenancy is not extraordinarily 
high in much of the country. 

I think it not improper at all for a young fellow to start in as a 
tenant, knowing he is going to have opportunities as a tenant and 
get the advantages, that all hope for. to become an owner through 
that process. But we should provide for a system whereby the 
young man need not depend on inheriting a farm or getting the farm 



RURAL CREDITS. 195 

by saving the principal, who, before he can buy a farm, goes out to 
some new section which the Government is opening up and takes his 
chances on what is left. 

It was not so necessary to have any system to provide for him in 
the past, because the Government had plenty of land and gave an 
opportunity for the young man to go out and take up a homestead. 
But now we have reached the point where, in the filling in and build- 
ing-up process, we need the system. 

We also need this system of long-term credit in order to make it 
possible to refund the outstanding obligations the farmers borrowed 
for short periods for these purposes, so far as the farmers desire to 
refund them. I think that would be one of the biggest and best 
things that could happen, because it would tend, I believe, to bring 
the farmers more nearly on to a cash basis of doing business. If 
they could borrow a sufficient amount to straighten them out. to be 
paid off over a period of years, they could start out on a cash basis 
and get the advantage of the discount in buying for cash, and it 
would be an admirable thing. I know personally of the advantage 
it would be to a number of farmers who have written to me or to 
whom I have talked in the last few months, because I have been in 
10 States talking to groups of farmers since I got back from Europe. 
I know they would take advantage of it for that purpose. 

Naturally, there would be raised the question, if the farmers did 
borrow money, whether it would be used to advantage or not. I 
think it not improper to include in the bill a requirement that the 
money should be used for agricultural purposes, for the buying of 
land, improving it, or refunding of outstanding debts. At the same 
time, without any such provision, the farmers at the present time 
have borrowed and are borrowing, and I think it is safe to say that 
the great majority of the money borrowed, the great bulk of it, is 
borrowed for proper and useful purposes. There is very, very little 
of it borrowed for foolish purposes. An occasional farmer will bor- 
row to buy an automobile when he should not have an automobile. 
Many of them may borrow to buy an automobile, and I think it is 
perfectly proper, if they find it desirable to buy an automobile, for 
them to do so. I know of nothing that has come onto the farm 
where I was brought up that was more useful as a farm tool than the 
motor cycle. I think it was as useful to the farm as the first manure 
spreader, and the cost did not differ greatly. The motor cycle made 
it possible if the separator broke down, or the thrashing machine 
broke down, to go to town, 6 miles away, in six minutes or a little 
more, and get the necessary part of the machine, the new cogwheel 
or whatnot, and to have it back and have the machine running again 
in a half an hour or so. The farmer used to put the horses in the barn 
and break up for a day or so until he could drive off to a neighboring 
city to buy the part, and he would be losing time while his crop was 
getting too ripe, and a wind might come up and shell out half the 
price of the farm. I believe the farmers generally will use the money 
borrowed to good advantage. 

Now, I would like to take up the answer to another question. I 
have been discussing the question, Do we need a system of long-term 
credit? And I think my answer clearly is, yes; we need it. How, 
now, are we going to build up a system? 'The strongest argument 
that came to me for a number of months was to adapt the building 



196 RURAL CREDITS. 

and loan association, because in some States the building and loan 
association was extending its activities out to the country districts to 
some extent. And I first was inclined to think that the building and 
loan association might do the business pretty well; but after studying 
it and after interviewing the leading officers of the national building 
and loan associations in this country, and writing letters and study- 
ing it, I have come to the conclusion that the building and loan asso- 
ciation is not the organization for this purpose. 

Mr. Hayes. Excuse me, but is not this bill which has been sug- 
gested by the commission a modification of the same principles that 
underlie a building and loan association? 

Mr. Coulter. Oh, it takes some of the same underlying principles; 
yes. The building and loan association as we find it to-day is an 
organization where the same fundamental principles apply — amortiza- 
tion, small payments, so forth, and so on. But I want to point out 
why I believe it would be a failure to attempt to extend building and 
loan associations as found to-day in the cities out through the country 
districts and have them do both types of business. 

First, the building and loan association is a local institution and 
depends on the savings of the members for the money which is used 
to negotiate loans. Now, I want to point out that there have been 
attempts in the last quarter of a century to establish national build- 
ing and loan associations — interstate building and loan associations, 
building and loan associations to look after that business in several 
cities — and every one has gone out of business. But that is an 
unimportant consideration. Past experience might not be the proper 
guide for future effort. The point is that the institution is a local 
institution and can do business only so far as local deposits are con- 
cerned. Its local loans and local deposits must equal each other, 
unless you provide for it a system of issuing bonds to bring money 
from the outside, or of buying bonds from the outside to use in sur- 
plus. But as I have gotten along further I have thought that would 
not be desirable and practicable. 

Second, these associations are based almost entirely upon city needs 
and city conditions rather than country needs and conditions. A very 
important characteristic of the building and loan association is 
monthly, bimonthly, or weekly payments. According to the tables 
made, the amortization tables, the whole plan is on a large number of 
small payments. That is proper for the city. Almost everybody in 
the city receives a weekly or monthly salary or wage; or if he is a 
storekeeper or in some other similar business, or a lawyer or doctor, 
his fees and income is regular and norma 1 throughout the year — prac- 
tical^ so. 

The fanner is in an entirely different kind of business. Except for 
the dairy farmer and the poultry farmer, you might say, practically 
speaking, the farmer's crop comes in once a year that is, the big bulk 
of it. Provision should be made, generally speaking, for annual pay- 
ments, although possibly in some sections they could be made semi- 
annual. It is barely possible that the dairy farmers and the poultry 
farmers might even take advantage of the monthly-payment idea. 

Mr. Platt. Why do you say it is "barely possible"? Is it not a 

fact that they get their money monthly, as a rule - the dairy farmers ? 

Mr. Coulter. I say it is barely possible that they might make 

monthly payments, and I think provision should be made for them, 



RURAL CREDITS. 197 

although I think that they could be taken care of in another way. T 
think as members of the bank they could make deposits as the money 
came in, and then when the semiannual or annual payment was due 
they could make their payment. 

Mr. Hayes. Don't you think it well to leave that to the individual 
case ? 

Mr. Coulter. I think 3 r ou might require annual or biannual or more 
frequent payments if desired. 

Mr. Hayes. Oh, yes. 

Mr. Seldomridge. To what extent is the value of diversified farm- 
ing becoming established in the country ? 

Mr. Coulter. I think we are having more diversified agriculture. 
But even though it is diversified, the crops still largely come in at 
certain seasons. 

Mr. Seldomridge. Don't you think it would be a benefit to the 
farmer that he should be taught the value of having something in 
connection with his farm that will be a constant source of income to 
him rather than to depend entirely on the crop ? 

Mr. Coulter. I think so. And yet the3^ must depend upon the 
cereal crops, the corn and the wheat, and those two are the principal 
crops, and then cotton is next, tobacco is next, fruit is next — prac- 
tically all mature in the fall, and you can not change it. The only 
change you can make is a little bit of poultry and meat animals and 
have a few subsidiary crops that might be raised in connection with 
the others. So that everything we can do in order to perfect any 
such system will not affect the principal. I am heartily in favor of 
every chance being given to try to encourage diversified agriculture, 
so that the farmers will have several crops and sources of income. 

Mr. Platt. Don't you think the dairy farmer in the milk busi- 
ness, as a great many of the farmers in New York, New Jersey, and 
Pennsylvania are, who sell their products every day and receive 
checks once a month — wouldn't you say the building and loan asso- 
ciation idea would be just as applicable to him as it is to any laboring 
man? 

Mr. Coulter. No; I would not. I think he could adapt himself 
to the monthly payment plan all right. That is all right, but you 
have your other point. Your building and loan association has no 
outlet for its surplus deposits or any source of supply if outside 
money is needed. That is, you would have places where you need 
money from the outside with no way of getting it, and you would 
have other districts which have surpluses and no way of limiting 
their deposits. 

Mr. Platt. They borrow from the banks sometimes? 

Mr. Coulter. That is a very exceptional and rare part of their 
business. But there is a third point I would like to make. The build- 
ing and loan association expects the borrower to pay back the loan 
from the salary or wages received on the outside, or from the small 
amounts of similar receipts, small payments coming in gradually. 
And another thing, the money is used, intended to be used, and the 
home whole plan of organization is to use it in the construction of 
buildings. In the construction of these buildings I think that the 
longest term it is reasonable and safe, probably, to make loans would 
be a period from 10 to 15 years. 



198 RURAL CREDITS. 

Now, I think it would bo fairly possible for these building and loan 
associations to serve the farmers in a few States; in fact, these farm- 
ers who wanted to build dairy farms and equip their barns for similar 
purposes, because there would be first your local deposits, equaling 
your local loans; second, your monthly payment, possibly; third, 
your short period and amortization because of your building feature 
in it; your provision for insurance attached to your loan for protec- 
tion for the company — all of the characteristics seem to fit in fairly 
well for the purpose. But for the buying of farms, the buying of 
land with a long period of amortization, with annual or semiannual 
payments, for getting money from the outside — it does not seem to 
me the building and loan associations will serve for the country. I 
think they are a very admirable institution. 

But I w T ant to point out one or two other features, and that is this: 
The building and loan association is such an admirable institution I 
would like to help it standardize itself, to get busy and perform its 
functions. Let me give you one or two facts I think the committee 
might well consider in this connection. You take the whole United 
States: There are twenty and a quarter million homes in country 
and city. A little over 6,000,000 of those are in the country and 
14,000,000 are in the cities, villages, towns, and boroughs. Now, in 
the country, out of the 6,000,000, 3,840,000 are owned and about 
2,270,000 are rented. In other words in the country, 63 homes out 
of 1 00 are owned and 37 rented. 

Now, turn to the citv. In the cities of this country, out of 14,- 
000,000 homes, only 5,250,000, or 38 out of each 100, are owned by 
the occupants, and nearly 8,500,000, or 62 out of each 100, are rented. 
The building and loan associations of this country have an immense 
work if they can do it, for 62 homes out of every 100 in the cities 
are occupied by renters at the present time. 

Mr. Platt. Right in that connection: What do you figure as 
homes ? The whole tendency of modern city life seems to be to 
house the people up in apartments and tenements. 

Mr. Coulter. That is a very small thing yet. The great mass of 
the people are in the smaller cities and towns and villages, and it is 
limited to a very few of your big cities where apartment houses have 
sprung up to any large extent. You generally do not find apartment 
houses in cities of less than 100,000, practically, at all — at least they 
are still very, very few in number. 

Mr. Seldomridge. They are coming very fast, Doctor. 

Mr. Hayes. Yes; I can show you some in towns of 3,000. 

Mr. Coulter. There are very few yet. I looked into this whole 
question to some extent. I have been trying to find out for the past 
six months, since the idea first came into my mind, which was at a 
Milwaukee meeting of the association, just what the situation was. 

Mr. Ragsdale. And is it not a fact that a large percentage of the 
people who are in apartment houses to-day would be boarding if 
they were not in apartment houses ? 

Mr. Coulter. I think many of them would. 

Mr. Seldomridge. But I think there are more and more adopting 
that kind of a life 1 rather than building homes. 

Mr. Coulter. I think it would be just the opposite if the building 
and loan association performed its function as it could and should 



RURAL CREDITS. 199 

do. The reason many live in apartment houses to-day is because 
they can not buy homes under present arrangements satisfactorily. 

Mr. Platt. I do not think that is the reason. 

Mr. Seldomridge. They pay more rent in apartment houses than 
they would have to pay to live in a home. 

Mr. Coulter. I think you will find that the payments they would 
have to make in buying a home as things are now would more than 
amount to what they would have to pay as rent. 

I have a list here of all the building and loan associations of the 
United States. There are 6,273 of these associations with two and a 
half million members. At the present time in the District of Colum- 
bia there are 20 such associations with 32,000 members right now. 
They are building and working that line here. The need for it is 
immense. 

Mr. Platt. What reason is there why the farmers can not organize 
these associations in very small villages and hamlets, perhaps, among 
themselves ? 

Mr. Coulter. I think they could if the local deposits would be 
sufficient to handle the demand for loans and if they would change it 
to biannual and annual payments and extend the loans over a longer 
period. 

Mr. Platt. They have done that in Ohio, apparently. 

Mr. Coulter. No; the Ohio loans are still for short periods. I 
think the} 7 do not extend over 12 years, I do not think any of the 
loans extend over 12 years, and they are trying the biannual payment. 
And of course the reason they are doing that is because their deposits 
exceed the demand for city loans and they are trying to find an outlet 
out in the country districts; they are trying to make use of their 
surplus funds in that way. But I feel pretty confident from all the 
information I have that it is an attempt to hitch up a milk cow and 
have it do the work of an ox, or possibly to hitch up two milk cows; 
and I think it would be better to have one good milk cow and one 
good ox. 

Mr. Hayes. I sympathize with your idea about extending the build- 
ing and loan association to the country; but what do you say to our 
proposition of standardizing them just as we are proposing to do with 
the rural credits ? Don't you think that would give them a great 
impetus ? 

Mr. Coulter. I think it would be an admirable thing. But I 
want to add one further argument to what I have said. I have taken 
now all the homes in the city occupied by their owners and have 
gotten hold of the information of the usual extent to which they are 
paid for and the extent to which they are mortgaged, and of the people 
who do have their homes in the city, of this 5,0000,000 out of 
14,000,000, about one-third of them have mortgages. Now, then, in 
the first place you have approximately two-thirds of all city families 
living in rented places and of those who live in their own homes 
one-third of them have mortgages on their homes. And I think it 
would be a perfectly fine thing to do to help the building and loan asso- 
ciation movement — I am not much on trying to work out city reforms 
or improvements — but I can not see from my study of it why it would 
not be just as justifiable to do that for the city as to do this other for 
the country? 



200 RURAL CREDITS. 

Mr. Ragsdale. How do you propose to exempt them from taxa- 
tion? 

Mr. Coulter. Let the associations issue bonds. 

Mr. Hayes. And let the bonds be exempt. 

Mr. Ragsdale. How could you do that with a municipality? 

Mr. Hayes. The lands would be taxed, of course. 

Mr. Ragsdale. The lands would be. 

Mr. Hayes. But not the mortgage. 

Mr. Ragsdale. The mortgage would be, too. 

Mr. Hayes. It should not be; it is not in California. 

Mr. Ragsdale. It would be, and how in the world is the United 
States Government going into a proposition of that kind ? It would 
be utterly impossible as a legal proposition for it to go into a propo- 
sition of that kind. 

Mr. Platt. They are included in this bill, if you read it through 
carefully. 

Mi\ Ragsdale. For a municipality I think it is impossible. 

Mr. Seldomridge. We are going to exempt mortgages in the States 
from taxation. 

Mr. Ragsdale. From United States taxes only. 

Mr. Seldomridge. From local taxation — — 

Mr. Platt. From local taxation, too. You read this bill and see 
if it does not extend its provision to those places where they do not 
allow mortgages to be taxed. 

Mr. Ragsdale. You might do that in one or two cities, but you 
take the whole United States and it would be impossible. 

Mr. Hayes. The taxation ol a mortgage is a double tax anyway, 
and unless the amount of the mortgage is deducted Irom the assessed 
valuation of the land it ought to be exempt always. 

Mr. Ragsdale. Still we would have no authority to go in and do 
it. We could not standardize that. 

Mr. Hayes. That is a question. I do not know. It is necessary 
in the system we are trying to organize, and if the purpose of your 
system is national in its character I think it is pretty reasonable that 
we could do it. 

Senator Hollis. If we have a right to establish these banks as a 
part of the agency of the Government, I suppose we have a right to 
exempt them from taxation. But I agree with Mr. Ragsdale that it 
is something which has got to be very carefully considered, and that 
we will have to take the very best advice on it. 

•Mr. Hayes. I know I am not entirely satisfied. I used to think I 
was a lawyer, but I do not any more. 

Senator Hollis. Mr. Coulter, in my State the feeling is that build- 
ing and loan associations furnish splendid investments, but rather a 
poor place to borrow T money; that under the system in vogue it is 
rather an expensive place to borrow money, but a good place to 
invest. Is that your conclusion ? 

Mr. Coulter.* It depends on the part of the country. In parts of 
the country where the surplus is on the side of deposits you have one 
situation; in parts of the country where the surplus is on the side of 
demand you have another situation. I had a chance to talk with 
some gentlemen from Colorado and South Carolina who are keenly 
interested in building and loan associations and to compare the dif- 
ferent views, and they absolutely took opposite positions. Now, 



RURAL CREDITS. 201 

their positions were so opposite that I got to asking questions, and it 
finally turned out that one was in connection with an institution 
where they had a hard time to find a place to lend the great amounts 
of deposits that they could get. The other was hunting for outside 
money. I said that the difficulty there was merely that there was 
not a system of interchange hetween the cities by issuing bonds and 
letting them be sold in outside districts — of getting money in or getting 
it out. 

Senator Hollis. I think the reason is in my State that the savings 
banks furnish money so cheaply and they furnish such a large margin 
of the value of the property that loans are made very largely at local 
savings banks. 

Mr. Coulter. Yes, sir. In that connection I think it should be 
borne in mind that the mutual savings bank is not a national insti- 
tution in this country. The mutual savings banks are found only 
in New York and New England and down the line along the eastern 
coast, but when } x ou get as far west as Wisconsin you only have one 
or two in the whole State. I doubt if there are any below the Ohio 
River, and I do not recall now how it is in the Far West. 

Mr. Hayes. Yes; we have some in California. 

Mr. Coulter. The number is so small when 3^011 get out of the old 
northeastern section that they are not important institutions. And 
in that district you have a big question as to how badly you need in- 
stitutions like farm-land banks. 

In the north of Italy they have what they call people's banks and 
savings banks which do practically all of the business. Now, the 
people's banks and the savings banks are practically not found in the 
south of Italy, and from Rome south the Italian Government has 
gone into the business of providing special laws for each Province to 
provide for a system in the particular Province, because of the ab- 
sence of these banks; but it must be remembered that there the 
people's banks and the savings banks in northern Italy, very early in 
the game, got in the habit of issuing bonds in order to get money and 
they put their collateral in back of the bonds which take the place of 
a system for special land-mortgage banks. 

Senator Hollis. I would like to inform the committee that even 
in my section, where we have a great many mutual savings banks — 
for instance, in my own town of only 20,000 people we have one bank 
with deposits of $12,000,000, and then we have two other mutual 
banks not as large, but with millions of deposits; and these banks do 
not like to loan money to the farmers for the reason, as the doctor 
has stated, that they do not want to hitch up a buggy and drive out 
5 or 10 miles to look at the farm. And I have found they seemed to 
prefer to invest in western farm mortgages that are looked after by 
some agent whom they trust than to loan money on local farms 
right in the same town. I have objected and brought it up in trustees' 
meetings and insisted that they should loan to local farmers even if 
there is some little expense attached to it. But there is that disin- 
clination. 

Mr. Platt. As a matter of fact, Senator, don't they prefer to loan 
money in the city of Boston rather than in the city of Concord ? 

Senator Hollis.. I think in the city of Concord they are glad 
enough to loan money in the city there, but the minute they get out- 



202 RURAL CREDITS. 

side where they can not reach things with the street cars, they are 
not interested. 

Mr. Pi.att. In my own town, as I have said in these hearings once 
or twice before, they have something like $16,000,000 of deposits, 
and there lias been some considerable complaint that they would 
rather loan money at 4 per cent in New York City than to loan it in 
Poughkeepsie at 5. 

Senator Mollis. I won d not say that. 

Mr. Platt. They loan out larger amounts, because it is more 
easily handled I suppose. 

Mr. Coulter. The mutual savings banks in the United States, 
taking all of them, have resources of some S3, 762.000, 000. Of those 
resources only 42 per cent w-ere secured by real estate, including 
mortgages. 

Mr. Hayes. City and rural both ? 

Mr. Coulter. City and rural both, and 46 per cent were secured 
by bonds and other similar securities. In other words, you take, 
then, all of the mutuals and only about tw r o-fifths of the resources 
are secured by mortgages and similar instruments. 

Now, I think the next question, really— the one that strikes me 
most forcibly — is whether the National Government or State gov- 
ernment shall make loans or guarantee the loans, or merely grant 
charters to institutions to do that. I would like to say a few words 
on that, because it is a subject very close to my heart. 

Russia finds it is necessary to make direct loans, practically 
speaking, through the nobility and the peasants mortgage banks 
of Russia. In fact, the Russian Government will issue her own 
bonds and raise money in that way in order to lend it out through 
these banks. But so far as I know very few other Governments 
have done anything of that sort except in so far as they have had 
trust funds left in their care and found it desirable to invest them. 
Some Governments have made certain appropriations or loans to 
institutions to get them started. Some Governments have also 
gotten into trouble doing that sort of thing. For instance, it may 
be that some of the committee have been on the committee looking 
into the Brazilian coffee troubles. You know that one of the States 
of Brazil, the State of Sao Paulo, decided that she would help the 
farmers of that State who were practical coffee raisers to hold their 
coffee in great warehouses, and the good Lord seemed to be against 
the State government, for year after year there were plentiful crops 
and the farmers did not seem to appreciate what the State was 
doing, because they cultivated deeper and planted more trees and 
raised more and more coffee because they were getting good high 
prices for their coffee. And the poor State, which is really a very 
rich and magnificent State in that great nation, the State of Sao 
Paulo, was finally nearly forced into bankruptcy and had to call 
upon the National Government of Brazil to help. And I think we 
have seen enough in the press and enough of the reports from our 
consuls and ministers to know of the trials and tribulations which 
resulted from that particular enterprise. 

It is true, and there is no need in trying to deny it, that different 
nations have attempted to deal directly with the farmers of those 
nations in various ways. 



RURAL CREDITS. 203 

Mr. Ragsdale. When you spoke of the system down there in Brazil 
that would not apply to the loans in this country, because the loans 
made in this country are made for a different purpose. The loans 
down there depended on the buying and selling of the coffee, but this 
loan is made for the purpose of its increasing the production of the 
land itself, and does not depend on the sale of the product, and there- 
fore the entire principle would be different. 

Mr. Coulter. My only point was that the National Government, 
in going into the business of dealing directly with the individual for 
the purpose of making loans for any purpose, takes a chance in 
getting so far in that all sorts of problems have arisen and have been 
followed by petty revolutions, and so forth. And I would say further, 
just at that point, that nations that have started in loaning to farmers 
have found the city folks wanting to borrow also, so as to buy homes — 
to have homes. 

Mr. :Bulkley. Doctor, we would be very glad to have you elaborate 
that fully. That is a matter which has come up a number of times 
and we would be glad to have you tell us the extent of their experiences 
in detail, if you can ? 

Mr. Coulter. The Russian Government is the best illustration, I 
think, of a National Government trying to loan directly and to handle 
directly the problems of individuals, and they have done it purely in 
order to solve the great social and economic problem in their country. 
The peasants of that country, 7 out of 10 people of the whole Empire, 
were absolutely illiterate. It seemed absolutely impossible for the 
peasants to organize any kind of an institution whereb}?' they could 
themselves become owners of property. The Russian Empire, then, 
as a national problem, not leaving it to the separate States to do it, 
took up the problem and worked it out for all different parts of the 
Empire. They woild say that in a certain State — or they called it a 
"local government" there — a certain number of acres (or using the 
Russian unit of measure) was about the right amount for a family to 
try to farm, because it was very rich land and very productive. In 
other districts they would say twice as much or 10 times as much 
should be allowed, and then they would give a long period of time in 
which to pay this money in. The return payment was really a sys- 
tem of taxation. 

Mr. Hayes. Those peasants were all slaves a few years before — 
practically slaves ? 

Mr. Coulter. Yes, practically so. 

Mr. Hayes. Serfs? 

Mr. Coulter. Yes; called "serfs." 

Mr. Hayes. That is the reason for that. 

Mr. Coulter. The idea was to make them owners of property and 
establish them as independent farmers. The Prussian Government 
found, I think, I am not much on history, that even using the power 
of taxation and actually collecting the annual payments as they would 
collect taxes, that in many districts if there was a bad crop they could 
not collect. They could postpone payment, to be sure. But if the 
peasants did not do the work they should, and if they could not 
raise enough money, actually could" not get enough money to make 
their payments, the Government either had to postpone the payments 
or send the officers out to seize the property. And then what were 
they going to do ? Send the peasants to Siberia ? The Government 



204 RURAL CREDITS. 

could not really do anything except to give them land in Siberia. 
It started out to give a sort of homestead right and there I under- 
stand that there has been about 1,000,000 families which settled 
in Siberia. The Russian Government continued, however, wherever 
necessary to postpone the payments. Eventually, after the period 
of time which was originally intended by the Russian Government 
for all of these serfs to pay out, there had been so many postpone- 
ments, so many delays, that at that time, which was a few years 
back, there were still these local uprisings and peasant revolts, and so 
the Russian Government canceled— the Russian Government had 
already made the payments to the original land owners — and the 
Russian Government canceled, I understand, hundreds of thousands 
of what were originally intended to be sales or loans. That is to 
say, so many serfs had failed to pay out in that length of time that 
instead of continuing to try to collect from some, when they had done 
all they could and worked just as hard as they could, it seemed 
necessary to cancel all of those and start all over again. 

Mr. Hayes. When did they do that ? 

All-. Coulter. I think that was about 10 years ago. 

Mr. Ragsdale. If the Russian Government had tried to aid the 
peasants by loaning through private banks, and then the banks had 
called upon the law courts to enforce the payments, in the endeavor 
to enforce those payments would it not have been necessary to use 
the officers just as it had to do in making the loan direct ? 

Mr. Coulter. Oh, yes. 

Mr. Ragsdale. Therefore the principle as to whether or not the 
money was advanced direct by the Government would not apply 
there ? 

Mr. Coulter. My point is that the Government went into the 
business of lending to its citizens and finally gave up trying to collect 
these loans and canceled them and said, "The land is yours." 

Mr. Ragsdale. The Government had the land just as this country 
did out in the West, and that is the reason. 

Mr. Coulter. But the Russian Government canceled the loans to 
get rid of them, and got rid of them in that way. 

Mr. Ragsdale. One question right there. Has the Russian Gov- 
ernment abandoned the principle of direct loans? 

Mr. Coulter. The Russian Government is still trying to break up 
the large estates and has established or reorganized an institution 
very recently 

Mr. Ragsdale (interposing). And is still loaning directly? 

Mr. Coulter. No. It has perfected an institution very recently, 
and I would like to say just a word or two about it, although I can 
not go into great detail. They reorganized what is known as the 
Peasants' Mortgage Bank. It is a national institution with a Fed- 
eral charter, or a national charter, or whatever you call it. Now, 
there is in Russia what is known as the Nobility Land Mortgage 
Bank. It is an institution where noblemen have borrowed large 
amounts of money, and if they do not pay it back, or if an agreement 
can not be reached, the Nobility Land Mortgage Bank wall take over 
the property. It is not exactly a foreclosure, although in many 
cases it is really a foreclosure. It in turn will turn that estate over, 
sell it on the books, to the Peasants' Land Mortgage Bank, which, in 
turn, before it takes it over, has it surveyed and so forth and divided 



RURAL CREDITS. 205 

up and sold without any original payment, practically, to the peas- 
ants and they are allowed a long period of time in which to complete 
the payments. This is all done through an institution known as 
the Feasants' Land Mortgage Bank. A more or less detailed descrip- 
tion of this is found in the report of the commission (S. Doc. 214). 

Mr. Ragsdale. That institution, however, is controlled by the 
Government ? 

Mr. Coulter. By the Russian Empire; yes, sir. 

Mr. Ragsdale. And therefore it is practically a direct loan of 
Government money to the peasants for the purpose of buying land 
and securing homes ? 

Mr. Coulter. The Government does guarantee it. I say Russia 
is a country which has tried Government loans direct to the indi- 
vidual, which has tried to educate them and tried to establish them 
on independent farms, and it finally had to give away land which 
it had to buy from the original owners. Russia attempted to estab- 
lish them as independent farmers. Now, in another way, that is 
exactly what England and Ireland are doing. In Ireland in the last 
few years, they have established about 385,000 farm tenants as new 
owners. That is being done 

Mr. Bulkley (interposing). Just one question before you get 
away from Russia. You stated about 10 years ago there were a 
good many cancellations. Since that time how has the system 
operated ? 

Mr. Coulter. At the original freeing of the serfs, the serfs were 
given such a small parcel of land that it turned out that few of them 
could make a complete living on that. They had to work part of 
the time outside for the former landlords, the heads of the property 
which was operated by the former owners, so that they were part 
laborers and part operators. Now, the Russian Government desired 
to practically completely obliterate the old community settlements 
and place the individual farmers out on individual farms. In doing 
this their dealings are through the peasants' bank that I referred to. 
The idea is that this bank can go out and survey all of the land of the 
community, divide it up into tracts, make independent farms, and 
reform or reorganize the whole community and lend the peasant the 
money to build a home out on the independent farm, so when he 
leaves the little community center and takes up the independent 
farm life practically his entire resources except a few acres which he 
got through a long period of years come through the peasants' bank, 
which has borrowed on the property. 

Mr. Bulkley. Then the peasants' bank has been organized for 
about 10 years? 

Mr. Coulter. The exact date of that is in Senate Document 214. 
I have forgotten just the exact date. But during that time if my 
memory serves me rightly, there have been three-quarters of a 
million independent farms started; that is, that many have changed 
from the old community form to the independent form. 

Mr. Bulkley. And have the farmers paid up ? 

Mr. Coulter. Prior to that time ? 

Mr. Bulkley. No; since that time; during the operation of this 
bank — have the farmers paid up well ? 

Mr. Coulter. Generally speaking. There are some portions of 
Russia where they have had pretty hard times. Mostly they have 



206 RURAL CREDITS. 

had comparatively good years and made some progress, and they are 
paying right along. In some districts land values have gone up 
taster than in this country. In some places they have doubled and 
trebled and quadrupled. 

Mr. Bulkley. Would you say on the whole the system is successful ? 

Mr. Coulter. I would say it is working in that direction. 

Mr. Ragsdale. Even if the Government lost a great deal of money, 
the operation of the scheme has resulted in bettering the conditions 
and placing the peasants on independent farms ? 

Mr. Coulter. You might say so. The peasants were absolutely 
illiterate serfs, numbering 6 or 8 persons out of every 10 in the whole 
Empire, and they had no great free lands to give away such as we had. 
Although my observation of the Russian experience is actually only 
confined to a few weeks' visit, I believe it is doing a very fine piece 
of work. But I do not believe the conditions apply at all to this 
country. I do not believe we have any of the same problems or 
characteristics in this country. 

I think that the only other big illustration of the Government 
going into a similar task is found in the Irish movement at the present 
time. I do not think we have any such trouble in this country as 
Ireland has, and therefore I do not think that their solutions are at 
all applicable. 

Mr. Bulkley. How has that worked ? 

Mr. Coulter. The exponents say it is doing perfectly wonderful 
things and the opponents say it is not doing so well. 

Mr. Ragsdale. That started originally, I believe, by an act of 
Parliament putting it into effect? 

Mr. Coulter. The Government itself took over those estates 
through its proper officers and looked after a division of the estates 
and apportioning them out to the tenants and then handling of the 
collection. They extend the longest period, I beliece, of 87 years 
for a complete repayment for the land itself — 87 years. 

Mr. Platt. The tenants on those Irish estates have lived there a 
good many years % 

Mr. Coulter. Generally speaking, they have lived there through 
years and years. Now, there have been some very hard things come 
out of it, they say. One man told me that he accepted bonds in the 
payment for his big estate in Ireland, and that the bonds had gone 
down to about 87 and he had thought he was selling at 100. But he 
was getting at the rate of, say, $87 an acre instead of $100 an acre. 
And (here were many things of that sort, but I was not long enough 
in Ireland to pass personal judgment on how it was working out. 
There seemed to be great deal of personal conflict of opinion. How- 
ever, the fact is that about 385,000 former tenants are now owners. 
Of course many of them have 80 years yet to pay out, but they are 
owners. 

Mr. Ragsdale. There is not any question, without regard to the 
loss probably to the individual selling the land and becoming the 
holder of the bond, but what the system, as a whole, is very beneficial 
to the former tenants of Ireland. 

Mr. Coulter. There is no doubt about that. 

Mr. Ragsdale. Xone. 

Mr. Coulter. I think the tenants are much better off as owners 
and have a much better chance to make progress. 



EUEAL CREDITS. 207 

Mr. Platt. Would you not say that a great deal of the conditions 
in the South regarding the negroes, for instance, are somewhat 
similar to the former serfs in Russia ? 

Mr. Coulter. No; I should not say that the conditions were any- 
thing like the same. 

Mr. Platt. The Russians lived in communities and held their land 
in an entirely different way from anything that has ever been done 
in this country ? 

Mr. Coulter. The conditions were very, very different. The con- 
ditions here have been such that in a comparatively few years instead 
of being practically all illiterate as the Russians still are — the Russian 
peasants are practically still all illiterate — very few of our negroes 
now are not able to read and write. Comparatively here, in a few 
years, since they have had the opportunity, the opportunity to buy 
seems to be perfectly open and free, they are buying by the tens and 
hundreds of thousands. It is not the same problem. 

Senator Hollis. I am quite interested in that. I do not remem- 
ber just the source, but I got the impression that the majority of the 
negroes can read and write in this country. 

Mr. Coulter. Yes, sir; they can. 

Senator Hollis. Is that an actual fact ? 

Mr. Coulter. Yes; the statistics show that. 

Mr. Ragsdale. Oh, yes. 

Mr. Coulter. Do you know what the percentage is ? 

Mr. Ragsdale. No; I do not remember just now, but there is not 
any question about a large majority being able to read and write. 

Mr. Platt. The percentage of illiteracy among negroes in any 
State is not over 30 per cent, is it ? 

Senator Hollis. Oh, that is a very small degree of proficiency. 

Mr. Coulter. Oh, yes; the percentage of illiteracy is above 30 per 
cent in several States. There are institutions all through the country 
that are working for the education of the negro. 

Mr. Ragsdale. The truth of the matter is that the great influx 
of foreigners coming here to-day is more illiterate than the negroes. 

Mr. Platt. That is not proved by statistics in any way. 

Mr. Ragsdale. I think it is. 

Mr. Bulkley. I think we are getting quite away from the sub- 
ject, and that is a matter which has a good many kinks to it. 

Mr. Coulter. That is a fact that can be proved one way or the 
other. It is a fact that for the negroes of Memphis— I had a letter 
the other day on the subject — there is a higher percentage of illiteracy 
than for the most illiterate borough in New York City. 

Mr. Ragsdale. I know New York is looked upon as one of the 
illiterate States of the Union. 

Mr. Platt. Its percentage is very low as compared with any of the 
Southern States. 

Mr. Ragsdale. I am not sure about that, with this recent crowd. 
I take it to be the fact that it was with the old crowd, but the new 
crowd is coming up pretty high. 

Mr. Bulkley. Mr. Ragsdale, if you would like to have it, we will 
have Dr. Coulter insert in the record the statistics on that point. 

Mr. Ragsdale. I have absolutely no objection to it. 

Mr. Bulkley. I do not think it is relevant here, but if you want 
it we will put it in. 



208 RURAL CREDITS. 

Mr. Ragsdale. I do not think it is of enough importance. 

Mr. Coulter. Russia and Ireland are the best illustrations on the 

Eart of a national government attempting to actually go into the 
usiness of loaning directly or financing individual farm enterprises. 
It is true that we have a lot of other small illustrations that could be 
picked out. At the present time I believe that the German Empire is 
trying to help establish the Germans on farms in the northeastern 
part of the Empire and gives them an advantage over the Poles and 
Bohemians. 

Mr. Moss. I would like to ask Dr. Coulter if in that instance it is 
not only where the land is about to pass away from the German and 
over to the Polish? 

Mr. Coulter. Yes. It is a matter of protection there. Our other 
illustration is the illustration that has been raised once or twice 
concerning our policy with the Philippine Islands. I noticed Mr. 
Norris's bill, which those who have studied it carefully will see at 
once, is adapting to the United States the provisions which are now 
maintained in the Philippine Islands. It so happens at the present 
time that I have a sister in the Philippine Islands, and her husband 
is treasurer and this bank falls under my brother-in-law's jurisdiction. 
I have talked with him many times when he has been over here and 
I am fairly well acquainted with their activities. In the Philippine 
Islands there is no doubt but what it is a special bank, but it is part of 
the treasury, as a matter of fact. There is no clerk hire at all for the 
bank, because the treasury clerks do all of the work; the institution 
is run as a sort of adjunct to the treasury. All of the effort is to try 
to establish titles on a sound foundation. The attorney general's 
office, or the proper law officers of the Philippine Islands, looks after 
the straightening out of titles without charge to the institution, and 
so forth. Therefore, between other bureaus, all of the work is done, 
so that there is practically no expense to the institution as such. 

The last time that I talked with the man that is now in charge of 
this agricultural bank, the loans were made at 10 per cent, which was 
the minimum rate of interest. They were talking of reducing it. 
I have not had time since I saw Mr. Norris's bill to look into the 
present rates. The total number of loans up to that time was less 
than 200, the last time, I should say, about a year ago, that I was 
talking with him about it. And the whole effort is practically to try 
to bring some system out of chaos. They have not any system of 
recording their land titles at all, you might say; they have adopted 
the Torrens system of land-title registration under a Federal act, and 
there is a very definite effort going on there to straighten out the 
land question. 

I should say that just the same as Alaska seemed to be an abnormal 
case in the establishment of a Government railroad, so the Philippines 
seem to be an abnormal case which called for special treatment to 

frovide for the establishment of some kind of an agricultural bank. 
t does not seem to me to be at all a normal situation. 
Mr. Bulkley. How has it worked out there? 

Mr. Coulter. It has worked in this way, that only a very small 
fraction of those who apply are able to get loans at all, because they 
have not the property, they have not the title. They could not get 
things straightened out; they can not prove any right to their land. 
The total number of loans up to date is insignificant. I doubt 



EUEAL CREDITS. 209 

whether it is more than 300 altogether. They have not had occasion 
to foreclose much. There have been two or three foreclosures; they 
had to straighten out a few kinks in that way. The loans are com- 
paratively small and they have not done much yet ; but it is an incen- 
tive and many people are trying to straighten out their land titles in 
order to get loans. But immediately they get the titles straightened 
out, then they find they can borrow cheaper elsewhere and go and 
try to do it. 

My information, as I say, is about a year old, but it is from family 
connections. They are greatly interested in their experiment. 

The provisions in the Norris bill, then, of having various other 
Government bureaus look after the inspections, the titles and so 
forth is taken from the method established in the Philippine Islands. 

Mr. Bulkley. Doctor, before you go on to another subject — I do 
not want to interrupt you— but if you are through with that subject, 
I would like to ask you how the Irish peasants have been paying out 
on their loans ? 

Mr. Coulter. They have been getting along pretty well; but it 
might be said that the amount which they are required to pay 
annually is very small — they try to adjust it so that it will be just 
the same, or almost identically the same, as they formerly paid rent 
to the landlord. The percentage which thus goes on to the payment 
of the land is so small that the general idea is that it will talce them 
on an average about 87 years to pay out, which would mean their 
children probably would have to do part of the paying. But they 
are definitely establishing them as owners on those estates, I should 
say. 

Mr. Eagsdale. And as I understand it, Doctor, the land is im- 
proving under this system; they are better satisfied and the proba- 
bility is they can increase the amount of their payments after a time ? 

Mr. Coulter. I should think so. I think probably a part of the 
improvement in the agriculture is because of the establishment of 
the department of agriculture. They have now traveling lecturers 
and local demonstrations and special schools, and they are getting 
ahead by leaps and bounds. 

Mr. Moss. In that connection, Doctor, is not one of the big things 
of the Irish agriculture that they are going from grazing into intensive 
farming ? 

Mr. Coulter. Yes; they are going into intensive farming. 

Mr. Moss. And but a small part of Ireland has ever been culti- 
vated — in some cases less than 5 per cent. 

Mr. Bulkley. Now, what can you tell us about Government loans 
in New Zealand ? 

Mr. Coulter. I really can not tell anything more than a few things 
I have read, but I could not add anything at all to what you all prob- 
ably know much better than I do. 

I wanted to say just a word about loaning through local associa- 
tions. Mr. Bathrick's bill and Mr. Hilling's bill struck me, I thought, 
as primarily suggestions along that fine. That is the movement that 
they are now working at in the southern part of Italy. In the south- 
ern part of Italy there are special laws for the various .Provinces — 
you understand that the people of the northern part of Italy are very 
much more highly educated and there is a better system of agriculture 
than in the southern part of Italy — (I do not know much by personal 

37031—14 14 



210 RURAL CREDITS. 

visit there, but by talks with others who studied the southern Italian 
method of long-time loans, I got this general notion of it) — the pro- 
visions of law are that the institution established ean lend through 
any kind of a local association doing a credit 1 usiness. They are 
encouraging the establishment of little IlaefTeisen societies and 
peoples banks and marketing societies all through southern Italy, 
and helping in every way they can. Provision is made that the land 
bank, for instance, will be created for the Province of Latium, or the 
Basilicate or Sardinia. This institution does business through local 
associations, the idea being that the local associations will get all of 
the local information, all of the details there, and will be aide to 
advise the land bank, and will also guarantee the loans and act as a 
go-between for that institution. 

I was sony afterwards that I did not go further down into that. I 
did not know about it at first. It is very new, as a matter of fact, 
and there is very little experience on it. I found, after I had gotten 
nearly read}' to come home, that they were definitely working in that 
direction. 

Mr. Bulkley. Is that a new thing, Doctor? Is that different from 
anything that is done in the other countries ? 

Mr. Coulter. So far as I know there has been very little use of 
other local units to handle such business. 

Mr. Moss. Would this be a difficulty in that way, that where they 
are loaning for 50 years and the association that guarantees the loan 
being voluntary, is not the organization apt to be dissolved during 
the life of the guaranty ? 

Mr. Coulter. The organization would not be allowed to liquidate 
or go out of business without leaving securities to cover its guaranty. 

Another thing that might be said of the local societies, which are 
considered as local units for all sorts of negotiations, is this: They are 
p ac tic ally perpetual institutions. In fact, they practically can not 
die. In the first place, they have got to accumulate a surplus, and 
then there is no way to get rid of that surplus. They are absolutely 
prohibited from dividing it among the members and quitting busi- 
ness. If they go out of business, the money must be used for some 
purpose of public welfare or placed in some sort of a trust fund to 
take care of the poor people ot the community or for some other good 
work. And therefore those local societies are practically absolutely 
permanent; they can not die. They have a fund there that is per- 
petual, and that is their reserve as they accumulate it. 

Now, I would like for the few minutes that are left to refer to one 
other question I have given considerable study to. It may not be 
a point to which you would want to give much thought. It is the 
question of whether a central institution is needed, or not. 

My office at the present time, temporarily, is studying the matter 
of State, municipal, county, and other government debt, sinking- 
fund assets, and related points, in connection with the decennial 
inquiry. There are in the United States some 3,000 counties, nearly 
as many cities, towns and villages of over 2,000 population; and 
there are 10,000 smaller towns and villages. Ana then there are 
thousands of road districts and drainage districts and irrigation dis- 
tricts and school districts— even precincts — very, very small units. 

Almost all of these in most States have the right to borrow money, 
if they can get it, for improvement purposes, and they arc required, 



RURAL CREDITS. 211 

of course, to create a sinking fund and the debt is paid back by taxa- 
tion. This was the thing that struck me, that these independent 
little cities, towns, villages, boroughs, counties, road districts, 
drainage districts, and so forth, where able, without any great central 
institution, to dispose of their bonds satisfactorily. Now, the total 
number of those is immense. There are thousands and thousands of 
them. I have been perfectly amazed in gathering the information 
for the use of the Government on that point. And they borrow very 
small amounts. It is found that these little units will borrow $5,000, 
$10,000 and create a sinking fund and gradually pay them off. Of 
course, they are backed by taxation and as I say, they borrow very 
small amounts. 

Now a farm land bank with a capital of $10,000 could issue $100,000 
worth of bonds or even $150,000 worth of bonds and would be per- 
fectly safe. In some European countries they are allowed to issue 
20 times the paid-up capital. That is to say a $10,000 institution 
could issue $200,000 worth of the bonds, obligating the land is all 
the security that is necessary. It seemed to me at first, I must 
confess, pretty necessary to have some sort of a central institution, 
one for each State or one for the United States, until I commenced 
to see the thousands and thousands of institutions and organizations 
that were issuing bonds and found a very good market for those 
bonds. 

Mi'. Hayes. At 5 per cent, usually? 

Mi*. Coulter. Some cities because they found the local men will- 
ing to take them 

Senator Hollis (interposing) . And tax exempt? 

Mr. Coulter. Yes; tax exempt — issued them at 4 per cent. 

Mr. Hayes. The little school districts in my State can sell bonds 
at 5 per cent at par. 

Mr. Coulter. Yes. 

Senator Hollis. Can you tell us just exactly what per cent of 
those is sold directly from the district issuing them instead of through 
bond houses ? There is quite a good deal of talk along that line. 

Mr. Coulter. I have tried to find the information but I can not 
give anything accurate at all. 

Senator Hollis. I saw by the papers that the treasurer of Massa- 
chusetts has just sold a large quantity right through the treasurer's 
office. 

Mr. Hayes. At what rate ? 

Mr. Coulter, They called for bids, and then they picked out the 
best bid and said now we will sell direct to the people at that bid 
and give them the benefit of the bid. 

Senator Hollis. That was rather rough on the bidder. 

Mi*. Coulter. It was, but that is what they did. 

Mr. Hayes. What was the rate? 

Mr. Coulter. I do not know— 4.37, or something like that. I 
know it got down into very fine fractions. The bids were very close, 
some of them, and the best bidder, an underwriting house, agreed 
to take all at a certain bid and then the State said that is the price 
we will sell for now and let the public subscribe for them. 

Mr. Seldomridge. At Colorado Springs I think they just placed 
$100,000 or more at 4 or 4£ per cent, and they issued them in denom- 



212 RURAL CREDITS. 

inntions of $100 as the Unrest, and the people gladly came forward 
and took them. 

Mr. Hayes. In California, San Francisco has been trying to dis- 
pose of some bonds for various improvements at 4£ per cent, and 
they have had difficulty in disposing of them at par. 

Mr. Coulter. It may be temporary. 

Mr. Platt. The rate of interest on bonds has shown a greater 
increase than anything else. For instance, it was not very difficult 
some veal's ago to sell municipal bonds in the northern cities, and I 
think even a good many small cities issued 3 per cent bonds. But 
now we have to pay 4\. 

Mr. Coulter. I think that is a good point, because I think the 
farm-land banks would beat the cities to it. The farm-land bank 
would have absolutely better than a sinking fund, because on the 
repayment of the mortgages the bonds are withdrawn to that extent. 
The trouble has been with the large cities that they have refunded 
and refunded and refunded and did not pay anything back. If they 
created a sinking fund, by the time that sinking fund is equal to the 
bonds, the property which they improved, the paving which they 
did or the building which they built has entirely disappeared and 
they have got to renew it in order to rebuild. Now the farm bonds 
which have a better market than those municipal bonds unless the 
municipalities of this country change their methods very materially. 

Mr. Platt. That might very well be true. 

Mr. Coulter. The land-bank bonds would likely have a better 
place. But there is another side on that question— and I have tried 
to be fair — the Arizona counties and cities found it so difficult to get 
money at good rates that the State took over all of the county and 
municipal obligations, outstanding city debts, and refunded them 
as a State debt and then in turn holds each county and municipality 
in proportion to the amount which the State took over for them. 
The State then took over the bonds and sold them as State bonds 
and gets better rates of interest and gives the counties and munici- 
palities in that State the advantage of this low rate. That is the 
only State I know of. 

Mr. Ragsdale. You mean by getting a "better rate" that it sells 
at a low rate ? 

Mr. Coulter. Yes, sir. Massachusetts tried the nearest thing to 
that, and that is established the metropolitan district, issues the 
bonds, and really the State is in back of them. The bonds are based 
upon the metropolitan districts, but they are not equally distributed 
through the State; they are handled by the State for the metropolitan 
districts. 

And so we have there two illustrations of States where in order to 
get lower rates for the municipalities and counties in the States, or 
other districts of the State, the State handles the question. 

With reference to the need for a central institution, then: We have 
in this country an illustration of the great mass of units not needing 
central institution, but we see there are some advantages for it. I 
think there is no doubt but what parts of the country in getting 
money from other parts would find advantage in a central institution. 

Mr. Ragsdale. Now, those States demonstrated the fact that a 
State guaranty, a Government guaranty, includes some advantages 



RURAL CREDITS. 213 

by way of lower rates and getting loans more easily than the localities 
themselves could have secured. 

Mr. Coulter. I think those two States, by going into that business, 
have accomplished something. 

Mr. Ragsdale. They have demonstrated, so far as it has worked up 
to this time, that it is practicable and profitable ? 

Mr. Coulter. So far as my knowledge goes. I wanted to bring 
this point out to show I am not covering up anything I know that will 
be helpful to the committee. 

Senator Hollis. I think it is fair to say Senator Bourne, who has 
been chairman of the Committee on Post Offices and Post Roads of 
the Senate, has worked out a plan for good roads, in which that is the 
principal feature, that the States will have the credit of the central 
government for borrowing money to build good roads. Of course, 
that has not been adopted yet, but it is the result of his study on the 
subject. 

Mr. Ragsdale. In my own State, South Carolina, the money lying 
in the treasury is loaned to the various counties, and we find it 
entirely satisfactory. In other words, I think it is a function the 
Government ought to perform. Where the credit of the Government 
can be safely extended to a locality for general improvement by 
which all of the people benefit, I think it ought to be done. That is 
my own view. 

Mi". Platt. Do you know about the early efforts of the State of 
New York to loan directly to the farmers ? There was a large fund 
loaned directly to the farmers of the State of New York some years 
ago, and nearly all the money was lost, as I remember it, and it has 
not been paid back. 

Mr. Coulter. There have been such experiences in early years. 
In fact, every New England State offered a bounty for the growing 
of grain, in order to make it possible for the New England States to 
compete with the Middle West when it commenced to grow grain. 
There have been many of those experiments, but although I have 
heard of many of them, I have never looked into the subject in 
detail. 

I would like to say a word or two in conclusion about the whole 
question of Government loans, the need of a central, etc. I think 
that if the Government would merely authorize associations or com- 

Eanies to form banks (they might well be called banks) that there would 
e no difficulty in the country, and I believe that these banks would 
be formed. I think that these associations should be pretty largely 
limited to land-mortgage business. On the other hand, I think that 
if a group of farmers wished to get together and take out a Federal 
charter and call it a farm-land bank, cooperative (if that is the name 
that might be adopted) that this group of iarmers should be allowed 
to organize such an institution, just using the word "cooperative" 
tacked onto the rest ol the name, just the same as I think farmers 
should be allowed to organize national banks, cooperative, by adopt- 
ing their own rules of voting and distributing dividends. 

Now, my suggestion is that we use the words "farm-land bank" — 
I have heard suggested "agricultural mortgage association." Those 
are three very long words to put up on your window. If you have 
no other reason for substituting "farm" for "agricultural" it is that 
this is a land bank as compared wdth a personal-credit bank. 



214 RURAL CREDITS. 

Mr. Hayes. A national farm-land bank. 

Mr. Coulter. It is a farm bank, it is a land bank, it is a bank, and 
I once in a while used to think of trying to get a simple name that 
would work. If I used the words "farm-land bank" and "cooper- 
ative" freely through the hearing, it is because I have gotten accus- 
tomed to talking of "farm-land banks, cooperative," because I 
believe the farmer should have the opportunity, if he wishes to, to 
start one of those and take out a Federal charter, under Federal 
supervision and inspection, and adopt cooperative rules. I do not 
think farmers should be compelled to, but I think they should be 
allowed to, and I believe that under a bill such as we have suggested 
many of them would do so. In fact, I have letters from farmers 
asking me to keep them posted, that they think it is just the right 
idea, that they want to organize one if the thing goes through; and 
I have promised to keep them advised. 

Mr. Brown. An expression you used a moment ago led me to 
believe you might favor a bank of deposit along with it, or deposit 
features. 

Mr. Coulter. I think if the farmers themselves organize their own 
farm-land banks, with their own capital, that they should be allowed 
to do a banking business so far as their members are concerned — 
only for their own members — because that would give them, then, 
so far as desiring to do a banking business is concerned, the various 
advantages found all over Europe in the people's banks which deal 
only with, members. 

Mr. Hayes. Do these people's banks make short-time loans and 
farm loans as well — the same bank ? 

Air. Coulter. They are the best illustration of institutions dealing 
only with members. 

Mr. Hayes. How long have they been doing it? 

Mr. Coulter. A good many years. 

Mr. Hayes. How many? 

Mr. Coulter. Of course they are only 30 or 40 years old. 

Mr. Mayes. That is old enough to demonstrate whether it works 
or not. 

Mr. Platt. Have any of those banks the compulsory saving feature 
connected with them such as a building and loan association, for 
paying in their money deposits regularly 1 

Mr. Coulter. No. 

Mr. Platt. They just take them as they have them ? 

Mr. Coulter. Yes. 

Mr. Platt. It seems to me there is one feature of the building and 
loan association, that the deposits have to be regular, which is a good 
one. 

Mr. Coulter. Oh, the savings feature, of course, comes in by re- 
quiring members to own shares of stock to be members and have some 
capital. And there is the only other point I would like to say a word 
on. That is, I think these institutions must have capital. 

Now, there is a great deal being said about the Landschaften 
societies, and I want to say this, that the early Landschaften societies 
of Germany did not have any foundation capital, and they ran along 
without any trouble in selling their bonds until the joint-stock com- 
panies, doing mortgage business with a capital, came in. Now, 



RURAL CREDITS. 215 

these banks had a revolving fund. The old Landschaften gave the 
bond to the farmer, and he sold the bond at some bank or some place 
else. But the land-mortgage banks came in with a foundation capi- 
tal and had a revolving fund to do business on, and they, instead of 
handing out the bond to the farmer, would hand out the money 
according to the current rate of bonds of the denomination which he 
took. If he took the 4 per cent bond, it might not be selling at par, 
or if he took a 3 per cent bond it might not be selling at par, and he 
could take what kind of a bond he wanted and sell it for whatever 
he chose. The joint-stock banks, coming in competition with the 
Landschaften, forced the Landschaften to do what seemed to be the 
best thing at that time, to form Landschaften banks, which are sister 
societies, with the same members. The bank does this part of it: 
Negotiates and sells the bonds, looks after the canceling of them, and 
so forth and so on. In other words, the early form of the old Ger- 
man Landschaft — the new Landschaften, they are called now — all 
over Germany has tacked this new Landschaft bank to it to do the 
business of that sort. That gives a revolving fund to compete with 
the joint-stock banks, and as a matter of fact the joint-stock mort- 
gage banks have not (and I believe as the result of that) extended 
very rapidly into the county districts. I believe that is one of the 
reasons why the joint-stock banks have not extended very much 
into the Landschaften territory. 

Mr. Hayes. The new bank, you say, is a new arm that does this ? 

Mr. Coulter. Yes. 

Mr. Hayes. They are two separate institutions, are they? 

Mr. Coulter. They are, technically, I think, two separate institu- 
tions, but really only one institution with the same members. 

Mr. Hayes. Something like our trust companies and national banks 
organized in the next room ? 

Mr. Coulter. Yes, sir; except they are all one group. 

Mr. Hayes. They are all one group here, too. 

Mr. Moss. The liabilities go to the same persons. The same mem- 
bers who take loans out of the Landschaft association have the 
responsibility as a Landschaft bank ? 

Mr. Coulter. Exactly. 

Mr. Seldomridge. Doctor, do you not think in this legislation we 
will have to provide, under certain rules and regulations, that these 
farm-land banks, in certain sections of the country, can do a cooper- 
ative bank business ? 

Mr. Coulter. I do. I think if they are cooperative they should be 
allowed to do so. 

Mr. Seldomridge. It seems to me it will be absolutely necessary, 
if we are to meet the needs of certain sections, that we shall have to 
provide for short-term credits. 

Mr. Coulter. I think so. I think Mr. Fischer's statement yester- 
day indicated that. And I think in the case the farm-land bank, 
cooperative, it ought to be allowed to do for its own members only 
a commercial business, the same business the commercial hank is 
allowed to do. I think it is fundamental and can be defended, and I 
think it is certainly needed. 

Mr. Platt. You mean to loan to the stockholders 1 

Mr. Coulter. Yes; to loan only to the stockholders. 



216 KUEAL CREDITS. 

Mr. Hayes. Our experience leads me to doubt whether it is safe 
or desirable to combine in tho same institution the long-time and 
short-time mortgage along with the commercial features. 

Mr. Seldomridge. Even if you limited tho amount? 

Mr. Hayes. No. It is a different institution entirely. It is run 
on a different basis. The worst bank failures I have ever known, 
and in fact the only ones I have ever known, were the result of the 
combining of those two functions. 

Mr. Seldomridge. You will not meet the needs of the agricultural 
communities if you do not do that. 

Mr. Hayes. Let them be organized in separate institutions. 

Mr. Ragsdale. Under the provisions in the old general banking 
law it was absolutely prohibited, but in the new law we have provided 
that loans may be made for not more than five years. 

Mr. Hayes. I would take it all out. 

Mr. Ragsdale. I say merely this, that it has been provided for 
national banks to accept deposits and make farm loans for not more 
than five years. 

Mr. Hayes. It is because of my experience and study of this sub- 
ject that I am bringing this out. I think that no commercial bank 
that is properly managed can make a five-year loan to a farmer or 
anybody else; but I want to know if there is any experience in 
Germany, Italy, or anywhere else that tends to show it is possible 
to oiganizc a bank which can combine those two functions safely. 

Mr. Coulter. Of course my idea is, this, bank would lend only to 
members. It can not go out and do business with others, and 
its mortgage business would be kept absolutely to itself, and 
the mortgages would always be placed in the hands of a fiduciary 
agent who would be the only one to authorize land bonds to circulate. 
That would be absolutely kept all by itself. But the same group 
in the same institution could go ahead and do business with their 
own members. I must say if provision is made separately for com- 
mercial credit I would not want it in this measure. 

Mr. Hayes. You say it should be allowed to do business with its 
members ? 

Mr. Coulter. Yes. 

Mr. Hayes. Just how does that affect the proposition ? 

Mr. Coulter. It affects it in this way, that every member is in- 
terested in this — they are all held responsible for each other through- 
out Europe, and the scheme of having a bank for its own members 
only is proving to be thoroughly sound. 

ftlr. Hayes. That is all right if it is organized for that purpose. 

Mr. Coulter. No one receives a loan unless he has a share of cap- 
ital, lie is liable then for any loss. The idea of having the bank 
do business only with its members has proven, wherever tried all 
over Europe, to be absolutely sound. 

Mr. Hayes. Of course that goes beyond my experience entirely. 

Mr. Coulter. I do not know of any failure at all. But I think 
you are right in the point that the bank should not do a general com- 
mercial banking business with everybody if it also conducts a land- 
mortgage business. 

Mr. Ragsdale. Why not? Let us get the reasons for it. The 
savings banks of America come under this same proposition. _ 

Mr. Hayes. Thev are not doing a commercial banking business. 



RURAL CREDITS. 217 

Mr. Ragsdale. Yes; they are. 

Mr. Hayes. No; they are not. 

Mr. Ragsdale. I know of some myself where they are doing both 
kinds of business in the same bank. 

Mr. Hayes. They are two different banks. 

Mr. Ragsdale. No; they are all under one charter. 

Mr. Hayes. They segregate the business in the bank. 

Mr. Ragsdale. No; they do not. For instance, in my own town 
we have a bank which does a savings bank and a commercial bank 
business all under one charter. It has a capital of $125,000 and the 
funds are kept all together. 

Mr. Hayes. It is a dangerous system, then. 

Mr. Brown. There is one question I would like to ask, Doctor, 
before we leave this point. If there was a commercial feature in this 
farmers' loan bank, would you favor loaning in a commercial way 
anything other than the deposits themselves? 

Mr. Coulter. No. 

Mr. Brown. Only the deposits ? 

Mr. Coulter. Yes. 

Mr. Brown. If you would limit all loans to the amount on deposit 
with the bank and only with its members, will it not mix that up with 
the mortgage business ? 

Mr. Coulter. I merely say that for these institutions for farmers, 
for farmers doing their own business, they have proved to be thor- 
oughly sound, as far as I could ascertain. 

Mr. Brown. That is, the commercial feature and the bank itself 
would be separate and apart ? 

Mr. Coulter. Yes. 

(Thereupon, at 1 o'clock p. m., the committee adjourned to Tues- 
day, February 24, 1914, at 10.30 o'clock a. m.) 



TUESDAY, FEBRUARY 24, 1914. 

United States Senate, 

Washington, I). C. 
The committees assembled in joint session at 10.30 o'clock a. m., 
Senator Henry F. Hollis, presiding. 

Present: Representatives Bulkley, Stone, Seldomridge, Hayes, 
Woods, and Piatt. 

Senator Hollis. Gentlemen. Ave have with us this morning a num- 
ber of gentlemen from out of town who wish to be heard. If it is 
agreeable to the committee we will hear first Mr. Scudder. 

STATEMENT OF S. D. SCUDDEK, OF NEW YORK CITY. 

Senator Hollis. Mr. Scudder, will you give your full name? 

Mr. Scudder. My name is S. D. Scudder; business address, care of 
Jefferson Bank, New York City. 

I have been in the banking business and mortgage-loan business 
about 25 years, and in farming about 5 or 6 years. While I am still 
president of the Jefferson Bank, of New York City, we have merged 
our business with the Century Bank, and we are just simply now 
liquidating the $1,000,000 remaining assets of the Jefferson Bank, 
so that you can put me down as not actively engaged in banking at 
the present moment. My farming experience in Minnesota was 
through tenants — wheat farming — but my farming experience for 
4 or 5 years in Texas was not by tenancy, but I actually lived on 
the place, near San Antonio, and farmed it, although I hired con- 
siderable help, just as everybody else does. 

If you will permit me, Mr. Chairman, in my own way to touch 
upon one or two points in this bill — the two main questions that 
occur to me — and then, if you wish to question me after I get through, 
I will be very glad to answer any questions that I can. I think that 
method is a timesaver. I have endeavored to anticipate some ques- 
tions and to answer them. 

As a citizen, I am intensely interested in some such legislation, be- 
cause for over a quarter of a century I have felt it to be absolutely 
necessary. I mentioned the matter in my talk before the monetary 
convention at Indianapolis some 20 years ago, where I was sent as a 
delegate from Texas, and where I introduced the first postal-savings 
resolution which was ever introduced in any convention in this 
country. We had a hard fight on that, but it was finally referred to 
the executive committee for action. I mentioned the matter of rural 
credits there as being in connection with postal savings, as an out- 
come of postal savings, as it has been in some foreign countries. 

In the eighties, after resigning a good position in the Bank of 
Montreal, 01 Wall Street, I represented the Scottish American Mort- 
gage Co., of Edinburgh, Scotland, for effecting loans on Minnesota 
218 



RURAL CREDITS. 219 

farms. Later, when my health gave way and the doctors ordered me 
South, I secured, after my recovery there, the Texas agency of the 
same company, and in addition several other foreign and domestic 
connections. Out of about $2,500,000 loaned during, say, 11 years in 
Minnesota and Texas, not a dollar's loss was sustained during my ad- 
ministration. There were some foreclosures, but very few. I can 
conservatively say within two dozen, and these, as a whole, paid out 
in final disposition of the properties. 

Two main questions arise in my mind in connection with the legis- 
lation here presented. Our Nation has just given to one-half its 
population, the commercial half we will call it, represented by its 
towns and cities, a bill that will amply care for their financial wants. 
But the farmer, representing nearly the entire other half of the 
Nation, is still to be likewise looked after, even if only with a reason- 
able beginning. You may say all you please about the town bank, 
or the small village bank being a friend of the farmer. I have been 
there, and can talk right off the bat on that subject. In connection 
with our mortgage business, my partner, Frank Dyckman, and I 
established what is to this day known in Minnesota as the State 
Bank of Sleepy Eye. When we started that bank there were about 
100 people in the town. We were mighty glad to have the farmer's 
business. He was a great friend. But as the town filled up with 
merchants and business men we found that the money which the 
farmer was depositing as really going to the merchants. It was 
quite natural. The merchant was our next-door neighbor, both in 
business and socially. He could reciprocate by sending us a new 
customer most every day, and in other ways he could reciprocate, 
whereas the farmer could not. And the personal contact was such 
that it was natural; we found our business, the farm business as it 
began, finally growing into a town and city business. I always re- 
gretted that it was so, but that was the fact, and I saw it in other 
places as well as our own. 

The first question which occurs to me, then, is : Will this bill, even 
if so framed as to secure the 15 to 1 credit line proposed therein, 
give needed relief to the agricultural sections of the United States, 
or prove even an entering wedge in that direction ? And the second 
question, like unto it : Where, supposing the farmers possess $10,000 
to invest in the initial capital of such an association — which per- 
sonally I believe is quite possible now in many sections of the coun- 
try — from what source, I say, will they be able to secure a credit line 
of 15 to 1 ? 

To the first question I answer: Certainly this bill is in the right 
direction, but does not go far enough. No matter how much capital 
a merchant or a manufacturer has, occasionally some outside help, 
some bank accommodation is needed. There are, of course, excep- 
tions; but I am talking of the general rule. So with the farmer. 
And while you are making it possible for him to mortgage real 
estate in order to buy or improve it, you must, if this plan is to be 
at all effective, give him some short-term accommodation. This 
can not be done with the $10,000 capital he puts up, because that 
sum is needed for the mortgage turnovers, as a basis for his 15 to 1 
mortgage credit. You must give the farmers of this country a 
chance to trade in money — that is, loose change — among themselves. 



220 RURAL CREDITS. 

This is what they need, and, in my judgment, from actual experience, 
I think they, as a class in the United States, need this as much as, 
and more than, they do cheap money with which to buy and improve 
their places. 

This bill in its stock plan provides " for deposits only up to one- 
half the capital and surplus" — a mere bagatelle, and absolutely 
useless. Neither are the deposits proposed under this bill ade- 
quately circumscribed. What is needed will be a larger deposit 
line and greater circumscription of these deposits. Ordinarily it 
requires about $2.50 of deposits to every $1 of capital in order to 
meet the ordinary expenses of any banking proposition, and when the 
ratio of 5 to 1 is reached there is a fair profit. I am, of course, 
talking of a small $10,000 concern, such as this bill creates, and some 
people will consider my figures even too low. Please do not think 
that *a large income will accrue from the mortgage department of 
such a concern — these $10,000 concerns. If in a small community 
150 $1,000 mortgage loans are made in a year, or 75 $2,000 loans, it 
will, in my opinion, be " going some." According to the bill, this 
will only bring in a gross profit of $1,500— $1,500 on 150 $1,000 
mortgages. Is that not right, Mr. Moss? 

Mr. Moss. Your computation is correct, but I prefer you give 
your own interpretation, because your interpretation is not mine. 

Mr. Scudder. Yes. Deduct from this $1,500 all the expenses of 
appraisal, bookkeeping, fiduciary care, selling expense, office rental, 
labor of. collecting, interest, and looking after tax payments, and so 
forth, and if there is very much profit left out of the $1,500, I would 
be surprised. 

To come to the point, I would recommend that both the stock and 
the cooperative associations, provided for in this bill, be allowed to 
take deposits in unlimited amounts. I would throw around it cer- 
tain strict rules, even so far as paying interest. I believe that I 
should prohibit interest allowance on demand deposits outside of 
perhaps Government, State, or county deposits. They are not so 
liable to be called for arbitrarily. I do not wish to be called ultra - 
conservative, but I think to pay interest on demand deposits which 
are subject to call at any time is a dangerous proposition. But more 
especially would I throw safeguards around the investment of the 
deposits — such a rule, for instance, providing that this rule does not 
apply to the purchase of United States bonds or such other savings 
securities as are approved by the Secretary of the Treasury or com- 
missioner under him: No deposits which are payable within one 
year shall be used or invested in any paper or obligation maturing 
beyond one year, and then only after a reserve of 15 per cent has been 
put by. One-third of this reserve to be in cash, the remainder in 
cash or on deposit with one or more banks which are members of the 
Federal reserve system. Such paper or obligation purchased or 
invested I would 'make subject to rules promulgated by the com- 
missioner or under the direction of the Secretary of the Treasury, 
and I would then even require that the paper be initialed by two 
officers of the bank or two directors or one officer and one director, or 
one officer and the fiduciary agent of the bank, but make it very strict 
in the way of the class of investments representing these demand 
deposit. 



RURAL CREDITS. 221 

I want to call your attention to this fact, that while it is a splendid 
provision, and I am glad it is in the bill, I really believe that some- 
years will elapse before the "cooperative" or mutual associations 
would be organized under this bill. 

My reasons for that are these : " Cooperation " means close asso- 
ciation, " mutuality " means the closest kind of personal association, 
and we have not got that in many sections of our country yet. In 
Europe it is all over. Every section of Europe is so thickly settled 
that you can get that mutuality, that cooperation in every small 
community over there. But there are very few communities in 
America that are in that condition at the present time. Everyone 
must admit that there are only a very few such in the United States. 

I think the mutual idea was very well illustrated by that Italian 
farmer who wrote to one of the American commissions, or of the 
United States commission, I have forgotten which, in this way: He 
was asked, as I understand it, to describe his mutual concern and 
its workings in a few words. " Well," he said, " we are a hundred 
all spying on each other, to see that no one makes any mistake." 

That is a good illustration of the mutual idea. It takes acquaint- 
ance, close association, to create a mutual affair that will work out 
in the banking line. It might not be so necessary commercially, 
but in the banking line it will be absolutely necessary. Then again, 
another reason why the mutual concern will not start as long as you 
have a stock plan, is the fact that our people here have been educated 
largely to the double liability proposition, and they do not want 
any " unlimited liability." I asked a farmer which he would prefer, 
to take $25 or even four $25 shares in a " mutual " with unlimited 
liability, or $100 in a stock company with only double liability? 
" Well," he said, " if I had no more than the $25 I would wait until 
I had $75 more and then put it into the ' stock company,' I do not 
want any ' unlimited liability ' — not in mine." And that will be 
the feeling among especially the intelligent farmers of the United 
States. A large part of them are now small stockholders in country 
banks, and they know what " liability " means. They know the 
meaning of it. 

But I think it is a very good thing to have it in the bill, and I 
have no doubt that the time will come, and that not so very far dis- 
tant, among the little farmers in America when that proposition will 
be taken up, and it will come when this country is more settled up 
and the farms are split up into small acreages as they are in Europe. 

I have named so large a reserve as 15 per cent, Mr. Chairman, in 
my proposition for the demand deposits, because, while I hope some 
day these farmers' institutions may be all bound together under one 
whole system, such as the commercial banks now are, this bill does 
not provide for any such thing as that, and makes them separate and 
distinct bodies, each one standing on its own bottom ; and you must 
remember that if you establish a system of this kind you must make 
the " credit " sound — their credit must be absolutely sound, and it 
will be necessary for them to keep up a larger reserve than the banks 
would have to do which are under the new Federal system and whose 
members have some higher source to go to for any extraordinary 
needs. 



222 RURAL CREDITS. 

And now as to my second question — a ready market for these bonds, 
sufficiently active 

Mr. Hayes (interposing). Excuse me. Before you pass to that I 
want to ask you one question : If you are going to allow unlimited 
deposits, what provision are you going to make for loaning the de- 
posits? The bill provides, as I recall, for loaning only to members. 
Do you consider that that would be a sufficient market for the loans? 

Mr. Scudder. No, sir; I would not restrict the loans. The bill in 
itself provides only that the mutuals or the cooperative associations 
under this bill shall be allowed to take deposits in unlimited amounts, 
and the bill refers, I suppose, in its authority for loaning to that 
particular class. 

Mr. Hayes. But let me understand you. You were willing to allow 
the stock bank to loan to any person ? 

Mr. Scudder. Oh, yes; as long as it stood by its rules — the rules 
promulgated for it. 

Mr. Hayes. And did you consider whether or not that would de- 
stroy the very purpose which we are striving to accomplish? 

Mr. Scudder. I am coming to that a little later. That is, you are 
afraid it might disturb things b}' creating competition with the other 
banks ? 

Mr. Hayes. Yes; and bring them into the same situation you were 
describing when I came in, with reference to banks, where these banks 
would simply become joint-stock commercial banks rather than farm 
banks. 

Mr. Scudder. I am coming to that a little later. 

Now, as to my second question : A ready market for the bonds or 
a sufficiently active market to warrant a credit aggregate of 15 to 1. 
You will not be able to find this market in Europe; at least, not un- 
til we establish the market in this country. That has been the history 
of all investments — our investments. We have first got to establish 
the thing here before we can expect any help from Europe, and I 
make the deliberate statement, after much thought, that " some Gov- 
ernment help " to start this thing is absolutely necessary, and it must 
be in some direction outside of Government " deposits." I say to 
start it, because really that is all that is needed just now. And I 
have what I believe to be a conservative and reasonable suggestion 
to offer which will prove a sort of compromise between those who 
ask "that the Government should guarantee the bonds to be issued 
by such institutions " and those demanding " that the Nation keep its 
hands off." It may seem a very small sum to mention, but sometimes 
a small lever lifts thousands of pounds. There are now about $40,- 
000,000 of postal savings in that particular fund. These come from 
the small people all over the United States — many of these people 
huddled in the cities, but who ought to be out in the country, and 
I feel pretty sure that some of them, if not many, are going to be 
induced to go there by this very rural-credit movement. Why should 
not their money be used for their benefit and not for the benefit of the 
commercial banks who have enough help and have recently been 
given added strength and privileges through the national-reserve 
bill? 

I would incorporate in this bill before you a provision requiring 
that not less than one-half nor more than 60 per cent of the postal 



RURAL CREDITS. 223 

savings deposits shall be " invested," not in the banks nor in their 
mortgages, but in the bonds to be issued under the provisions of this 
bill. Of course, due discretion would be given to the trustees of the 
postal savings banks, so that they could determine purchases of these 
bonds only after being convinced that the banks issuing them had 
complied with all the requirements laid down by the provisions of 
this bill, and such other rules and provisions as may be promulgated 
by the Treasury Department. If you thing the Government and, I 
will say, any other holder of such bond should have additional secur- 
ity, you can add to the mortgage security by making the holders of 
these bonds " preferred creditors " to the extent of the entire capital 
and surplus of the bank. This would add, even in the extreme case 
of a 15 to 1 issue, a margin of 6f per cent to the already good margin 
under the mortgage. This would mean that those people depositing 
their cash in such banks would need to possess all the more confidence 
in the management of the banks before they would entrust their funds 
to them. Personally, I do not believe such a provision would be nec- 
essary, because the propert}^ margin is already ample, and in most 
instances some liquidation assets would still remain after payment 
of all depositors. The very purchase of these bonds by the Govern- 
ment, even in the small way I have mentioned — say, about $20,000,000 
of the $40,000,000 of postal savings — would, I am sure, establish at 
once before the world the credit of these farm mortgage and deposit 
societies. Remember, please, that the postal savings bank is only in 
its infancy and that even only a slightly better rate of interest would 
largely increase these deposits. Various States would soon follow 
suit, through pressure on them from farming communities for some 
share of the State's investment funds, now going into every other 
conceivable channel but that of encouragement to agriculture. And 
in my judgment it would not be very long before foreign as well as 
our domestic investment channels would recognize the strength of 
these 35-year bonds and allow them to flow their way. I would cer- 
tainly leave in the bill that provision authorizing the " deposit " of 
the United States court funds, and also postal savings; but clearly 
require that these deposits must be treated like all other deposits; 
that is, kept liquid, not be tied up in any long-time propositions. If 
thought necessary, a sufficient number of these short-time loans could 
be deposited with the Government fiduciary agent to amply protect 
these strictly " Government deposits." 

I am referring, you see, to the Government " deposits," which are 
in contradistinction to the " investment in the bonds." In my opin- 
ion there is no more danger in allowing the institutions created under 
this bill stock companies as well as the mutuals, to take deposits 
in unlimited amounts, providing you protect those deposits by proper 
rules, than there is danger in allowing commercial banks — as you now 
have done under the new banking act — to make real-estate loans; 
because you have hedged this privilege about by reasonable restric- 
tions which make for conservatism. The farmers of the country will 
likely be the only ones to deposit in these institutions, whether they 
be stock or cooperative, and that is just as it should be. My only 
concern is, Will there be sufficient of these deposits to make the 
project really pay? And I will answer this by saying this will be a 
certainty, at least in a number of communities, and very likely some 
of the banks now in those localities will even see it to their interest 



224 EUEAL CREDITS. 

to come into this rural-credit system. Doubtless a cry will at once go 
up from some of those very sections, and it may be from other sec- 
tions of the country, to the effect that their business will be injured. 
That is just what they said when I proposed the postal savings bank 
system, 20 years years ago. Now, they all agree it is one of the best 
things this Government could have done. 

This same " opposition " was put up by the banks throughout the 
United States when the new currency bill was submitted. Four thou- 
sand delegates hooted me in Boston, at the last annual bankers' 
convention, because I dared stand for the main principles of the act. 
Now, listen — nearly every national bank has called for application 
papers, and State banks in many spots are pleading with their legisla- 
tures to make the same thing possible for them. It seems to me, 
gentlemen, this is a safe rule in the finance or economy of any nation ; 
whatever is of immediate relief and benefit to the whole country will 
prove a blessing to every particular class in the end. And, mark 
you, please, the banker never comes in at the tail end; he is one of 
the first to get his fingers on the beneficent results of any great 
movement. 

My strong impression is that Senator Fletcher's first impression 
is correct, namely, that these two matters, " long-time credit " and 
" short-term accommodation," will work together harmoniously. In 
this country they are meant to go together and not to be separated, 
as they are in Europe. The beginning will be small, but all great 
things start out that way. My personal desire would be to have 
these scattered institutions linked somewhat on the new regional Fed- 
eral bank plan. Some day I believe it will be so. But for the pres- 
ent, while in its infancy, probably it will be wisest to start the move- 
ment somewhat as the Government launched the national banking 
system 50 years ago — as individual units and with a modicum of aid. 
But let this aid be a real one, and not only on paper. The simple 
" deposit" by the Government of the postal savings, as proposed in this 
bill, would really be most dangerous, because these mortgage associa- 
tions would at once proceed to tie such deposits up in long-time loans 
while still responsible to the Government for repayment " on de- 
mand." The Government of the United States could instantly break 
every bank in the land. It is no answer to say that the Government 
" would not do such a thing " ; the very fact that it could would 
from the very start destroy the "credit" of these banks or farmers' 
deposit companies before the world. On the other hand, why should 
not the United States "invest" one-half or even 60 per cent of the 
postal savings in the actual bonds of these institutions? They are 
supervised by the Government and have a large property margin, as 
is herein provided for. Surely the United States is in much stronger 
position than any of the New England or New York mutual savings 
banks, which have always made it a practice to invest largely in long- 
time bonds, including those on railroad security, and even on some 
industrials. And if such an inconceivable thing did happen as the 
withdrawal of over half of the postal savings at any one time, our 
Government's credit would be mighty small if it could not provide 
for that contingency. I am satisfied that we can not create a market 
for these bonds abroad until we have established a market for them 
here. That is the history of all investments. I am also satisfied 



RURAL CREDITS. 225 

that no beginning can be made in the United States unless the Gov- 
ernment is willing to give the movement some more effective aid 
than simply " supervision," and that what I have suggested will be 
effective enough in the beginning, provided the infant's feet are not 
amputated by denying the " deposit privilege " to the youngster. No 
mere real-estate mortgage plan is going to satisfy the American 
farmer. Place all the restrictions about a deposit and short-term 
accommodation plan you like, but establish the principle. 

There are one or two details in the bill which I would like to men- 
tion before finishing. Some of them are comparatively unimportant. 
But take, for instance, the name 

Senator Hollis. "Which bill are you referring to now ? 

Mr. Scudder. Either one; the Senate or the House bill. Are they 
not just alike? 

Senator Hollis. There is Senate bill 2909 and H. R. 12585 and 
Senate bill 4246. 

Mr. Scudder. Oh, yes. This is 4246. 

The name is very important. You would not want, for instance, 
a name that would conflict with the present banking system, National 
or State. If you called this institution, for instance, First National 
Farm Land Bank you would have a conflict. You would have the 
First National Bank on one side of the street and the First National 
Farm Land Bank on the other side of the street. There will not 
only be a mix-up among depositors, one being taken for the other, 
but there would be a great confusion in the mails almost immediately. 
I think, too, that there ought to be, just as there is in Germany and 
all over Europe, a very marked difference between the names of the 
commercial banks and these farm banks, and I have this suggestion 
to offer, that in the case of the stock banks, stock institutions, you 
call them " mortgage and deposit companies," and in order to iden- 
tify them with the national system put the initials " N. A." back of 
the name. That is done in the national banking system to this day. 
The Bank of New York, with which I was connected at one time, has 
the old name established by Alexander Hamilton, the Bank of New 
York, N. B. A. — national banking association. Everybody knows 
it is a " national bank." The Bank of Charleston has the name of 
the Bank of Charleston, N. A. — national association. And so it is 
easy enough to identify these institutions with the national banking 
or national association or the national law by taking some such name 
as that I have suggested. 

Mr. Weaver. Would you not use the word " land " in that con- 
nection? 

Mr. Scudder. I do not see why it is necessary. Nobody would 
ever think there was any chattel mortgage about it, and you do not 
want too long a name. It seems to me " First Mortgage & Deposit 
Co., N. A.," is a big enough name. 

Mr. Weaver. There are lots of private mortgage companies. 

Mr. Scudder. Yes; but none that belong to the national associa- 
tion. First Mortgage & Deposit Co., N. A., distinctly describes that 
particular institution. There are plenty of national banks. That is 
just the trouble. I think there is likelihood of confusion, even if you 
use the word " national," because, supposing 3-011 called it the First 

37031—14 15 



226 RURAL CREDITS. 

National Mortgage Co., you will have a mix-up just as sure as you 
do so. 

Mr. Weaver. I think your suggestion is good, except I would use 
the word " national " and the word " land." 

Mr. Scudder. I just throw this out as a suggestion. For the 
mutual, I would put the word " mutual " and not " cooperative." 
The word " cooperative " is rather long and unwieldly ; it is more like 
cooper. For the " cooperatives," then, I should suggest, " Mutual 
Mortgage Society, N. A.," so that there would be an absolute distinc- 
tion between one and the other. The stock company, then, would be 
"Mortgage & Deposit Co., N. A.," and the mutual would be the 
" Mutual Mortgage & Deposit Society, N. A." That is just simply 
a detail suggestion. 

On page 9, I think, this is rather indefinite where it says " interest 
rate generally prevailing in the community." I think if you just 
simply cross that out and say " rate of interest not exceeding the 
local rate in the State where such corporation is located," that will 
be so much simpler and will not bring up a dispute as to " what is 
the prevailing rate in the community." Some mention was made 
that the amortization 35-year period was too long. I sincerely hope 
there will not be any cutting down of that; because if anything were 
done, I should say make it 40 years rather than to cut it down to 
less than 35. 

There seems to be a conflict, possibly, under the clause in the fifth 

;ion, page 12, which permits the dismissal of the officer herein 
described as fiduciary agent. Under the terms of this bill it would 
be possible to force upon a board of directors a man who might be 
perfectly honest, but would be disagreeable to them, and I should 
say he could be put out, say, by a vote of four out of five directors, 
where there are only five directors, and two-thirds majority vote 
where there were more than five directors. 

Mr. Moss. Did you notice this provision in the bill? [Indicating 
provision of bill.] 

Mr. Scudder. Yes ; but there might be a dispute there as to whether 
he was objectionable. That is, somebody might say he was objec- 
tionable, and others might say he was not objectionable. It is just 
a thought. Of course, I would certainly make his removal subject 
to the commissioner of farm-land banks, but what I wanted to do 
was to provide that the commissioner could not make a man stay 
there in the bank if he was objectionable to the majority of the 
directors. 

Mr. Moss. Mr. Chairman, will you permit me to ask a question 
there? 

Senator Hollis. Yes. 

Mr. Moss. Now, I would like to have you, if you can, discuss a 
little more fully that feature. The purpose of the commission in 
framing this bill was that this fiduciary agent was made a Federal 
agent, and he is responsible directly to the Government in the first 
place. He must not be objectionable to the directors when he is 
appointed, but his appointment must come from the Government 
directly, and his responsibility is to the Government, and why would 
you have him removed by another authority than the Government? 

Mr. Scudder. I think in a small bank such a fiduciary agent 
would be apt to be a bookkeeper, would he not ? 



KUEAL CREDITS. 227 

Mr. Moss. Quite possible in a small bank ; yes, sir. 

Mr. Scudder. I do not think it would pay otherwise; the bank 
would not make enough profit to pay him unless he did some other 
work. 

Mr. Moss. That was the idea of the commission; that is, that he 
could be an employee, but not an officer. 

Mr. Scudder. Well, but imagine a bookkeeper who is objectionable 
to four out of five directors, perhaps, who, on account of his disagree- 
able manner, would not be tolerated in the bank, and yet the com- 
missioner would have the right to keep him there. 

Mr. Moss. Would you have the bill so framed that the fiduciary 
agertt would have to accept a position under the bank; for instance, 
would have to be made an employee of the bank? 

Mr. Scudder. Well, I think in small places the postmaster might 
act as fiduciary agent, but I think in most cases the fiduciary agent 
would have to be in the bank, because the transactions are there, and 
he would have to initial the books, and perhaps the paper itself ; and 
I think that this bill ought to provide for a deputy, because if your 
fiduciary agent is sick you have no provision in there for anyone 
to take his place, and the business of the day might be blocked and 
could not proceed — could not make a mortgage. I imagine that in 
most places, in smaller banks ; the bookkeeper or some employee of 
the bank would be the fiduciary agent. 

Now, I take up another provision of this bill : I think, where the 
capital runs up, say, over $10,000, it is possible that there might be 
a very large concern started under this bill, $100,000, or $200,000, or 
$500,000, in which case I think 1 per cent for the running expenses 
of a mortgage bank is excessive. For small institutions 1 per cent 
profit on mortgage business is not excessive; but if you come to a 
very large institution — and I know because I did a very large mort- 
gage business, and I found that as this business grew the profits were 
proportionately much greater and the expenses proportionately 
less — and so I would suggest that you have some provision where 
the capital runs up into large amounts that this percentage of 
charge which under this bill is fixed at 1 per cent for all be reduced. 
I think that would be right. 

Mr. Hayes. Do you think it is desirable to encourage the forma- 
tion of large societies of wealthy capitalists? 

Mr. Scudder. I do not, sir. Personally, I would restrict it to 
$50,000. 

Mr. Hayes. Why ? 

Mr. Scudder. Well, because you want this system to be operated in 
the farming communities. You do not want a big institution, for 
instance, in New York, with a large capital, to come out there con- 
trolling, say, a capital of $500,000 or $1,000,000. I think it would 
be a great mistake. 

Mr. Hayes. Why? I do not understand why it would not be 
desirable, and very desirable, to have $500,000 o$ money from New 
York come out in the farming districts. I do not see it. 

Mr. Scudder. I think if New York wants to put out the money 
it can buy the " bonds." 

Mr. Hayes. That is all right; they may want them, but if they 
do not want them why should we object to their putting their money 
out and making it possible to form big mortgage associations? I 



228 . RURAL CREDITS. 

would like, if you have any reason except your sentimental reason, 
to hear it. 

Mr. Scudder. Well, I think the u expense " of a New York bank — 
of course they pay big salaries to their offices — could be made to 
absorb a large " profit " through the payment of large salaries. 
That is a well-known fact, 

Mr. Hayes. Yes; but if they are limited to the 1 per cent I do 
not see why that should interest the farmer, so long as the farmer 
would not have to pay any more. 

Mr. Scudder. Well, T differ with you. The Avrong to the farmer 
might be corrected by that suggestion I made about reducing the 
amount of charge below 1 per cent against the farm lands. That 
might correct it. 

Mr. Platt. You do not think that the capital for these banks can 
be raised entirely among the farmers, do you ? 

Mr. Scudder. Well, I think in time it is apt to be so under this 
bill. The operation of it will, I think, commence in the country 
districts. I believe so. 

Mr. Bulkley. Supposing that you limited the amount of the 
charge in the case of a very large bank, could not that bank, going 
into competition with the smaller bank, practically reduce the charge 
all the way around? 

Mr. Scudder. That is to say, if there were a large bank starting 
cut from Philadelphia or New York that it might do the business 
cheaper? 

Mr. Bulkley. You con, pel it to do the business cheaper accord- 
ing to your suggestion. 

Mr. Scudder. Yes. 

Mr. Bulkley. Then how would the smaller bank get business at 
all. or would they have to reduce to the same rate as the big bank? 

Mr. Scudder. Yes; I think that would be true. One result <>f the 
bill would be, if you do not limit the capital, that the large institu- 
tions would crush the small ones. 

Mr. Hayes. Would drive them out of business \ 

Mr. Scudder. Sure; although cutting clown their profit source 
might somewhat operate against their entering distant or smaller 
fields. 

Senator Hollis. That is because they can operate with smaller 
expenses ? 

Mr. Hayes. That is what I mean. If they were operating on the 
same basis they would not be able to compete, but if they were 
allowed or prevented from making profits of. say. above one-half of 
1 per cent, of course, they could reduce their loans and drive the 
small institutions to the wall ; they could not get any business. 

Mr. Scudder. That might be so if they could once get into the 
field and make such competition possible. Now to proceed: I think 
I saw some place where the commissioner was not authorized to own 
any stock. Yes ; here it is : " The commissioner is not authorized to 
own any stock in any farm-land bank." I do not think he ought to 
own any stock in any bank. He ought to be like the Comptroller 
of the Currency; he ought not to be allowed to have any stock any- 
where. Then, I think where you allow branch banks there ought 
to be some clause, " under the rules and regulations approved by the 
commissioner or by the Secretary of the Treasury," or whoever else 



RURAL CREDITS. 229 

has the authority both in that matter and the sales agency matter, 
jtt would be well to have it so. 

I think that is all. I am ready to answer any questions that may 
have occurred to you while I spoke. 

Mr. Hayes. I would like to have you discuss, if you will, the propo- 
sition of whether a general deposit business would not be very likely 
to destroy the purpose we have in view in organizing these banks. 

Mr. Scudder. What is the purpose?' 

Mr. Hayes. Well, the principal purpose is, of course, to meet the 
needs of the farmer, especially for long-time loans. I think his 
needs are fairly well met now for short-time loans. Perhaps he has 
to pay a little high rate of interest sometimes. If the farmer has any 
credit, he can generally get loans somewhere, but I think the great 
need is for long-time loans, easy payments, and a low rate of inter- 
est. That is what I am most impressed with. The thing that oc- 
curred to me is that if you allowed them to take deposits generally 
and do a general commercial business, such as, of course, is more 
profitable to the bank, would not that necessarily have a tendency to 
destroy the long-time loan feature? 

Mr. Scudder. Mr. Hayes, I think there is a difference between us 
in the very start off. I believe that there is more necessity for help- 
ing the farmer in respect to short-term accommodation than there is 
to help him in long-term mortgages. I believe that this country 
requires some such proposition to help the farmer, no matter how 
much money you furnish to reduce the interest he pays on his real- 
estate mortgage. You must remember he is mortgaged almost up to 
the hilt. The farmers of this country owe something like $3,000,- 
000,000 on real-estate mortgages. Under this bill I believe a big 
help will be given the farmer in that respect. There will be a re- 
funding — there will be a reduction of interest. But you must go 
further. He needs more banking facilities. Then, you can not estab- 
lish a small institution of $10,000 and make it " pay expenses and 
earn a fair dividend " by simply doing a " real estate mortgage busi- 
ness." It would be absolutely impossible to form a stock company 
to do a mortgage business if it were only allowed to take deposits 
only to the extent of one-half of its capital and surplus. There 
would not be enough money out of the " profit-and-loss account " to 
pay expenses. And I am not thinking of big expenses; I am think- 
ing of the expenses that I incurred when I was a little banker out 
in Minnesota, and I was very glad if I could make $1,000 gross a 
year in the beginning. And you must remember you have got a fidu- 
ciary agent and inspector to pay, and in some cases there will be 
an additional bookkeeper who will have to get at least a book- 
keeper's wage. 

Mr. Platt. Is that so? 

Mr. Scudder. Sir? 

Mr. Platt. Building and loan associations are run without any 
bookkeeper's wages. 

Mr. Scudder. You would find in this case the responsibility of the 
business to the Government would require you to pay some salaries. 
You might be able, as I said, in the start off, in some places, to get 
the postmaster to act as fiduciary agent ; or probably a director of 
the bank — no : it could not be a director : but in most cases vou will 



230 RURAL CREDITS. 

have to have some one in the bank who is connected with the actual 
business of the bank, i. e., loaning money. 

Mr. Hayes. Would you not have an idea that plenty of good, 
intelligent farmers, in a small community, would be glad to act as 
fiduciary agent for a nominal salary that would be absolutely trust- 
worthy and all right? 

Mr. Scudder. You mind find a farmer, near a village that had a 
bank, who would be glad to come in and act as such agent; but you 
have got to have him come in every day — you are making loans 
every day, or apt to. 

Mr. Platt. The loan associations will not be making loans every 
day. will they? 

Mr. Scudder. Well, sir; you figure it out — $10,000 produces 
$150,000 of credit, and it takes one hundred and fifty $1,000 loans 
to absorb that credit, does it not? 

Mr. Platt. Yes. 

Mr. Scudder. One hundred and fifty $1,000 loans in a small com- 
munity is doing a considerable business. 

Mr. Hayes. Yes; but when you once get it out it takes some of 
them 35 years to get it back in, and you are only making the loan 
initially on such a capital as that. 

Mr. Scudder. Unless the $150,000 could be kept outstanding all 
the time there would be very little profit. 

Mr. Hayes. That is all very true, but for the reason they are 
standing out, you would not be making so many loans from your 
capital. 

Mr. Platt. In this business they run in competition with the build- 
ing and loan associations in the country, in small communities, which 
only meet once or twice a month to make loans or transact busi- 
ness, and they pay a nominal salary of $50 a year, or something like 
that, for the bookkeeping. 

Mr. Scudder. You mean, to have an institution that would not be 
open every daj^? 

Mr. Platt. No : why should they be open every day ? 

Mr. Scudder. You will have to take the deposit idea away entirely. 

Mr. Platt. Not necessarily. The deposits could be put in at such 
time as the society had its doors open. 

Mr. Scudder. Then how would the deposit be paid out? Sup- 
posing I deposit in such a bank Saturday and I wanted some money 
Tuesday, and they did not meet again until the next Saturday ? 

Mr. Platt. You would have to wait until the next Saturday, I 
suppose, unless there was some special arrangement. 

Mr. Scudder. He has to have his deposit on demand in order to do 
business. 

Mr. Platt. It seems to me that if these small associations, oper- 
ating in the smaller communities, are going to compete with the build- 
ing and loan associations they must keep their expenses down to a 
very low level, or the building associations can do the business and 
they can not. 

Mr. Scudder. You will have to eliminate the deposit feature en- 
tirely unless you prescribe hours, or make it possible to let the insti- 
tution take the deposit and hold it until it was matured and ready to 
pay it out. 



RURAL CREDITS. 231 

Mr. Platt. Is it not possible to have some kind of compulsory de- 
posit such as the building and loan associations have? If you join 
a building and loan association, you agree to put in $2 or $5 a month 
and that is a compulsory deposit, just as amortization is a compul- 
sory payment. It comes along to you every month like a bill. 

Mr. Scudder. Yes ; but I do not believe the farmer could do that, 
Mr. Piatt. I do not believe you could make such a rule for a farming 
community. 

Mr. Platt. Probably not for monthly payments, but how about 
semiannual or annual payments? 

Mr. Scudder. Well, there are some farmers who could not deposit 
even semiannually. You might make it annually and succeed in pro- 
viding a compulsory deposit system. 

Mr. Bulkley. Mr. Scudder, in the light of your experience in run- 
ning small banks in different communities, what do you think would 
be the actual expenses of one of these $10,000 banks ? I mean in de- 
tail and in dollars. 

Mr. Scudder. If they are allowed to take deposits or if they are 
prohibited from taking deposits? 

Mr. Bulkley. Suppose we eliminate the deposits. 

Mr. Scudder. If they were not allowed to take deposits, they 
would have only the mortgage business from which to get any in- 
come, would they not ? 

Mr. Bulkley. Yes. 

Mr. Scudder. That would be, at the most, $1,500 a year, if they 
had out the whole $150,000 in bonds. 

Mr. Bulkley. In that case what do you assume that they do with 
their paid-in capital stock? 

Mr. Scudder. Their paid-in capital stock is being used in making 
these mortgages. Of course, when the mortgages are actually made 
they would have $10,000 perhaps in mortgages, which would bring, 
say, 5 per cent. 

Mr. Seldomridge. Would not this condition arise, that they would 
be unable to issue further mortgages until they had a ready market 
for their bonds? The operations of the bank would be immediately 
stopped 

Mr. Scudder (interposing). It all depends en the market. 

Mr. Seldomridge. Unless the market is open. 

Mr. Scudder. Oh, absolutely. 

To answer Mr. Bulkley "s question, the income, at the very most, 
would be $1,500 to $2,000— 

Mr. Bulkley. You think it would not be safe to not count on any- 
thing from the capital stock ? 

Mr. Scudder. If you did, it certainly would not be over $500 or 
$600. 

Mr. Bulkley. No; I think it could not possibly be more than that. 

Now, what would be the necessary expenses? 

Mr. Scudder. I should say that if you did not take deposits, the 
necessary expenses would be, first, you would have to give the presi- 
dent something. That might not be very much in certain localities. 

Mr. Bulkley. How much do you think that should be? 

Mr. Scudder. He would look after the institution, supervise the 
investment of funds, which he would have to do, of course, through 



232 RURAL CREDITS. 

the directors and appraisers, bui he would have to give it some per- 
sona] attention. If he were a fanner, he would not ask considerable 
for his time, but I expect $150 at least in the start off. His labor 
might be less later on, but it would be a considerable work. I do not 
know that you could find very many men who would do it for $500 a 
year in a small place like that. Then there would be the bookkeeping 
to do, and I doubt whether you could get a president to do all the 
work. He would have to have some clerical help, lie would have 
the taxes to look after and the interest to collect. 

Mr. Bulkley. What do you think that would cost? 

Mr. Scudder. Well, I do not know; $500 would be very cheap. 

Mr. Hayes. Do you think so, with the farm-land mortgage feature? 

Mr. Scudder. Yes, sir; the bookkeeping is going to be considerable. 

Mr. Hayes. Is that a fact? 

Mr. Scudder. With 150 loans, the taxes to look after, interest to 
collect, to see about insurance, that the property is properly insured— 
it is a good, big job, gentlemen. 

Mr. Seldomridge. Then you have got the amortization, later on, 
to come in. 

Mr. Scudder. Yes. 

Mr. Bulkley. Mr. Scudder, how often should some officer or agent 
of these banks inspect the several farms on which loans were made? 

Mr. Scudder. Well, in our mortgage business in Minnesota we at 
first were not able — we had so much to do in the office that we could 
not make the inspection as often as we desired to, but we found that 
inspection was absolutely necessary once a year. 

Mr. Bulkley. Each loan should be visited once a year ? 

Mr. Scudder. Pretty much each loan. Of course, in some instances 
we depended on our agents. For instance, we would have an agent 
over in Winona, a very good agent, and we could depend on him, and 
we paid him a little extra to give us reports on farms that we had 
loans on in that community, but we found inspection necessary once 
a year. 

Mr. Bulkley. In this estimate that you are making, do you cal- 
culate that the president, whom you are going to pay $500, will do 
all of that personally ? 

Mr. Scudder. No, sir ; I do not see how he could. You w T ould have 
to give the fiduciary agent a little more salary for inspecting the 
150 farms in the community. I do not care if it is just within one 
county, it is a big job. 

Mr. Bulkley. Would you have to pay some man and furnish him 
an automobile or a horse to do that ? 

Mr. Scudder. I think so. 

Mr. Bulkley. How much do you think that would cost ? 

Mr. Scudder. I do not know. It might pay the bank to own one. 

Senator Hollis. Mr. Scudder, you have seen commercial banks 
where one man did all the actual work, besides what the weekly 
meeting of the directors had to do, passing on loans? That is, you 
have seen a man who would come there in the morning, open up the 
bank, sweep the floor, receive the money, pay out money, and keep 
the books? You have seen that, have you not? 

Mr. Scudder. I have done it myself — for three months only, be- 
cause my mortgage business got so big I just could not do it. 



RUBAL CBEDITS. 233 

Senator Hollis. And a man like that in a community such as 
would run a bank of that sort, would do that for a salary of $1,000 
or $1,200 a year? 

Mr. Scudder. Oh, yes. 

Senator Hollis. That would actually run one of these little banks? 

Mr. Scudder. A commercial bank? 

Senator Hollis. That would actually run a commercial bank, and 
if it would run a commercial bank it would easily run one of these 
farm-loan banks, if there were no deposit features ? 

Mr. Scudder. Do you think so ? 

Senator Hollis. I am asking you. I do not know. 

Mr. Scudder. I think the farm mortgage business, looking after 
the mortgage business is really more expensive than the commercial 
features. 

Mr. Bulkley. You do not consider that automobile expense, do 
you? 

Senator Hollis. No. 

Mr. Seldomridge. Do you think, Senator Hollis, that a man could 
take all the responsibility of running these banks, looking after the 
bookkeeping, being responsible for the transfer of money, and all of 
these things, that you could get a man of that kind on a salary of 
$1,000 a year? 

Senator Hollis. Yes ; I know that is done. 

Mr. Seldomridge. Any such man as that could go into the city and 
get $1,500 or $2,000— that kind of a man. 

Senator Hollis. I know they can. I know in my own State Avhere 
there are a great many small towns that do it. We have a great 
many small banks that do business just that way, and the men are 
entirely honest, stand well in the community, and bring up families 
and educate them on $1,000 or $1,200 a year. It does not seem 
possible. 

Mr. Hayes. Less than that sometimes, too. 

Senator Hollis. Well, I am speaking of those I know. And I 
am wondering whether it will not be possible to run these farm-land 
banks the same as suggested by Mr. Piatt, on the building and loan 
plan, by having some business do the banking, to be at the banking 
rooms three nights a week for two hours to receive deposits. It 
might look rather curious, but I am wondering whether it could not 
be run on some such plan as that, because we can all see that the ex- 
pense is going to be pretty large, especially large proportionately 
for a little bank. 

What do you think of that, Mr. Scudder? 

Mr. Scudder. Well, if they were savings deposits absolutely — i. e., 
only time deposits — it might be worked out that way. But for 
demand deposits, if a man gives a check and the collector of another 
national or State bank comes to the door and it is closed there would 
be a " protest." You can not do it. But for simply saving deposits, 
that might be done. Of course, in your State the savings banks 
do nearly all of the mortgage business. 

Senator Hollis. Yes; almost entirely; and they do not like to 
make farm loans. I will agree with you on that. They do not like 
to make farm loans. The banks have no facilities for taking an 
automobile or buggy and driving out 8 or 10 miles to inspect that 
loan, and they will not make that loan unless somebody will look 



234 RURAL CREDITS. 

at it. and there is that drag on our farm-land business in our State. 
They loan readily in Minnesota or Kansas or somewhere through an 
agent that will tell them that it is all right. I do not like that. 
I have fought against it in what I have had to do with it. 

Mr. Seldomridge. Let me ask you a question. Would it not be 
possible that the Government should furnish space in the post-office 
building for office space for these banks ? 

Senator Mollis. In the first place where those hanks would be 
hu-ated the Government does not own the buildings. 

Mr. Seldomridge. Yes; but it pays the rent. 

Senator Hollis. Of course, that is true. 

Mr. Platt. The Government does not even pay the rent in third- 
class post offices. The postmaster pays it out of his salary. 

Mr. Seldomridge. In third-class offices they do. 

Mr. Platt. Not in third class — third and fourth, both. 

Mr. Hayes. Just a moment in this connection. If I have a correct 
understanding, all the expenses you refer to are borne by farmers 
who are interested in the community, without expense to the bank 
largely. 

Mr. S( udder. In the stock concerns or mutual? 

Mr. Hayes. Well, in both, largely. They are borne by public- 
spirited men who do not expect to make any profit out of it. That is 
the way I am looking at it. That is the idea I have arrived at in my 
mind from my study of the subject. Of course, there are big stock 
banks in which that would not be true, but I am talking about the 
small banks in the country places. 

Mr. Scudder. Well, going back to my experience in Minnesota — 
in the small places — I do not know of a farmer who would do a thing 
like that who would not want to be paid for his time. 

Mr. Bulkley. What would be the annual legal expenses of such 
a small bank? 

Mr. Scudder. Does the 1 per cent cover the legal expenses? 

Mr. Moss. No, sir. 

Mr. Bulkley. I do not think so. 

I understand that it does not cover the examination of titles, but I 
supposed it covered any expenses that might result from foreclosures, 
would it not? 

Mr. Moss. I did not catch that. 

Mr. Bulkley. In case of foreclosure, can you not collect attorney's 
fees? 

Mr. Moss. I judge that would be governed entirely by the note, and 
I judge the hank would avail itself of the same kind of fee that any 
person would. They would have to pay the court expenses, just as 
they do in the case of any foreclosure. That is a matter of contract. 

Mr. Bulkley. The court expenses, but how about the attorney's 
fees? 

Mr. Moss. In my own State that is a part of the court expenses. 

Mr. l>i lkley. I contemplated that the mortgagor would have to 
pay it. 

Mr. Moss. I take it for granted that the court expenses would 
always be borne by the man who breaks his contract, and I judge the 
bank would take advantage of the law to protect itself just as any 
private lender would do in that respect. 



RURAL CREDITS. 235 

Mr. Scudder. You would be apt to get your attorney's fees paid 
through the foreclosure fees and examination of titles, and so on, 
which we did in our business when it became large. 

Mr. Bulkley. Do you think that any allowance should be made 
for rent? 

Mr. Scudder. I should say so, in a large number of cases. There 
may be some few cases where there would be no rent to pay. You 
would have to have an office somewhere, it seems to me. 

Mr. Bulkley. Then, you have spent a pretty fair share of that 
$1,500 in this respect. How desirable does that make the stock in the 
banks as an " investment " ? What class of people would you expect 
would invest in it ? 

Mr. Scudder. I would not expect very much " investing " in a 
bank that did not do a deposit business. I do not see how it could 
be done. 

Mr. Bulkley. When you speak of a deposit business, you mean a 
considerable one? You do not think this 50 per cent deposit would 
be sufficient ? 

Mr. Scudder. No, sir. 

Mr. Platt. You do not mean deposit business confined wholly to 
members ? 

Mr. Scudder. No. With the stock company you can not do that. 
With the cooperative company, you can make such a rule, but I think 
that the nature of the deposits that would come into such a bank 
would be the farmers' deposits which now go into commercial and 
savings banks, because there is a good deal of pride in America — a 
good deal of community pride. It is not as it is in Europe. In 
Europe the individual is swallowed by the State, but in America 
the individual makes the State. That whole principle runs through 
our form of Government. If you authorize the farmers to establish 
these banks, there would be little banks starting up everywhere and 
you would find that the farmers who own the stock would be the 
depositors, and the depositors would come from the country, and it 
would encourage saving in the country, such as it has never been 
encouraged in this country except by " savings banks," which are 
few and far apart in some sections. 

Mr. Bulkley. Now, Mr. Scudder, suppose some remote community, 
where there is not an adequate amount of local capital, and the bonds 
of these institutions would have to be sold somewhere outside, on 
what interest basis do you think they would sell ? I mean the bonds 
of a small bank such as is provided for in this bill, located, for in- 
stance, in Arizona ? 

Mr. Scudder. If the Government did not help in some way to 
establish the " credit " of that bank, they could not establish it at all. 

Mr. Bulkley. That Government help is sentimental, is it not? 
You do not mean to say that $40,000,000 would be enough to make 
the credit 

Mr. Scudder (interposing). It is somewhat sentimental. But show 
me the bank whose obligation the Government holds and I will show 
you an institution whose credit is established and whose similar 
obligations will be taken by the general investing public on any 
reasonably profitable basis. 



236 RURAL CREDITS. 

Mr. Bulkley. Assume you give them that sentimental advantage, 
and assume you make them absolutely tax exempt, on what interest 
basis would they sell ? 

Mr. Scuddek. Well, in Arizona, I am afraid they would have a 
hard row to hoe locally, because there are not enough commercial 
banks or savings banks in Arizona to invest largely in such bonds, or 
any kind of bonds, no matter how good, because they have other use 
for their money. 

Mr. Bulkley. Do you think that is where the capital would come 
from, from the larger banks in the same community ? 

Mr. Scudder. Yes; largely; and from people who put their money 
in such banks now at 3 per cent. It seems to me these farm-land 
bank bonds would not be issued at much less than 44 or 5 per cent, 
and it would be quite natural for some money now in the present 
established banks to be withdrawn for the purpose of buying such 
bonds, especially if it were known that the Government of the 
United States owned some of them. 

Mr. Seldomridge. Do you think it would affect the volume of time 
deposits in these commercial banks? 

Mr. Scudder. It would be apt to affect the deposits of savings 
banks that are paying 3 per cent interest on their deposits. 

Mr. Seldomridge. There are a good many national banks that pay 
3 per cent on time deposits. 

Mr. Scudder. Yes. 

Mr. Seldomridge. Would it not affect those, too ? 

Mr. Scudder. I think it would take some money out of National as 
well as State banks. 

Mr. Platt. Do not the savings banks, nearly every one, pay 4 
per cent ? 

Senator Hollis. Yes; most of them do. 

Mr. Scudder. The mutual savings banks nearly all pay 4 per cent, 
yes ; but I was thinking of out West. 

Mr. Hayes. All the banks in my own town pay 4 per cent. 

Mr. Scudder. That is in California. 

Mr. Platt. In some places they pay 5 and some places they pay 
even 6. 

Mr. Scudder. In those sections where banks pay a large interest 
rate, it might take a little increase to induce the people to take 
those bonds. Of course, in all banking propositions "confidence" is 
the foundation. If I get the idea that the Government has confi- 
dence in this bank sufficiently to purchase some of their bonds I. 
as an investor, am going to take the bonds, just on account of that 
very fact. And no matter in what State that bank may be located. 

Mr. Bulkley. On what interest basis do you think they would 
invest in them? 

Mr. Scudder. If you mean local investors, it would be different 
in different sections. You take such bonds, for instance, in Minne- 
sota, and the farmers have gotten fairly well off in Minnesota now, 
I think possibly 4^ per cent might induce some to be taken locally 
there. Do you not think so, Mr. Coulter? 

Mr. Coulter. I do not know about that. 

Air. Bulkley. What would you say about the South — say Mis- 
sissippi ? 



RURAL CREDITS. 237 

Mr. Scudder. There is a Mississippian here. 

Mr. Bulkley. I am going to ask him, too, but I would like to 
get your guess. 

Mr. Seldomridge. Ask him about Texas. 

Mr. Scudder. I could better answer about Texas. 

Mr. Bulkley. Well, all right; what would you say about Texas? 

Mr. Scudder. In Texas there are some sections where the Ger- 
mans have absolutely paid off all their mortgages and are loaning 
to each other to-day; and the rates are fairly low in those sections of 
Texas. I think that such a bond would take in Texas at 44 or 5 
per cent, in certain sections, if the people knew that the Government 
owned some of them. 

Mr. Bulkley. Do you think there would be enough money in 
Texas to take care of the local banks? 

Mr. Scudder. There are other sections of Texas that would not 
take them at any price. Texas is very large. 

Mr. Bulkley. Do you think there is enough money in Texas to 
be " invested " to take care of the local requirements? 

Mr. Scudder. I think there is enough money in Texas to start 
many $10,000 banks on the stock basis, provided you let them accept 
deposits; not otherwise. 

Mr. Bulkley. Take Mississippi. I assume Mississippi would 
have to sell bonds outside of the State ; they could not sell them on a 
4-J per cent basis, could they ? 

Mr. Scudder. No; not locally. I should think, however, that they 
could sell them outside the State. 

Mr. Bulkley. Could they sell them on a 5 per cent basis ? 

Mr. Scudder. Yes; they could do that, if the Government aid I 
have suggested would first establish their credit. 

Mr. Hayes. I think they would bring 5 per cent in California. 

Mr. Bulkley. What would vou say about a State like Idaho or 
Montana ? 

Mr. Scudder. You would for a while not have many such institu- 
tions in those States. The same way with Arizona. You would not 
actually have very many institutions of that kind there for some 
time. 

Mr. Bulkley. Those are the very States that need relief, because 
they are paying too high an interest rate. 

Mr. Scudder. Montana, of course, is very largely agricultural, and 
is developing very fast; so is Idaho in certain sections; and doubt- 
less as this development takes place mortgages on real estate will 
be needed. 

Mr. Seldomridge. The need to-day in that section is more short- 
term credits. 

Mr. Bulkley. Do you think such a State as that could sell on a 
5 per cent rate? 

Mr. Scudder. Well, in Montana, I am afraid they have so much 
use for other developments now that locally there would be little 
investment in such bonds. 

Mr. Hayes. I know of some irrigation projects in Idaho and Mon- 
tana that have sold bonds to do this work. 

Mr. Scudder. Yes, sir; that is true; but the purchasers of these 
securities have been outside those States. 

Mr. Hayes. And still they are taxable, you know. 



238 RURAL CREDITS. 

Mr. Bulkley. At 6 per cent* 

Mr. Hayes. Yes. 

Mr. Bulkley. Do they sell them at par? 

Mr. Hayes. They sell them at par. 

Mr. Platt. All bonds sell on a taxable basis throughout the coun- 
try, with the exception of a few United States bonds. 

Mr. Bulkley. Of course, these are small institutions, which are 
independently managed, which we must assume 

Mr. Scudder (interposing). Which all stand on their own bot- 
toms. 

Mr. Bulkley. Which stands on. its own bottom ; yes. 

Mr. Hayes. May I suggest one thing more? Have you consid- 
ered that to join the general deposit business with the farm-land 
business, that it means a banking business, and it takes somebody 
that knows something about the banking business to handle that? 
Have you considered whether it would be safe for us to authorize a 
combination like that, which is alwa} r s dangerous? Is it safe for us 
to do that with men of little experience in banking and in business 
generally that would necessarily have to be handled in these banks 
that we propose organizing? Have you considered that feature? 

Mr. Scudder. I have. The farmers with whom I come in contact 
personally, of course, have been in Minnesota and Texas; and I will 
back many a farmer I have known to undertake the management of 
such a bank — — 

Mr. Platt. Where did the capital come from to organize these 
banks ? 

Mr. Scudder (continuing). Under certain conditions. 

Mr. Platt. Where did the capital come from to organize all the 
little banks in Minnesota and North Dakota, for instance, the $10,000 
banks — State banks? 

Mr. Scudder. The whole State of Texas is plastered with $10,000 
State banks. 

Mr. Platt. Where did the capital come from ? 

Mr. Scudder. It comes from the country largely, right there from 
the farming people. Lots of farmers and ranchmen in Texas own 
one. two, or more shares. 

Mr. Platt. I do not know anything about Texas, but I do know a 
little bit about Minnesota. I lived in Wisconsin on the edge of 
Minnesota, and my information was there were chains of little banks 
organized all over that country. 

Mr. Scudder. There have been since I left there, but before I left 
there there were no " chains of banks " in Minnesota. Each bank 
was formed in its own little community. I had $1,500 saved up and 
my partner had $1,500, and we started our bank on $3,000. That is 
all we had as a banking capital at first. Of course we secured a good 
mortgage agency. We had the agency of the Scottish American 
Mortgage Co., and that helped us to start up in business. But we 
started that bank before there was any State law made. We simply 
opened our doors and put a sign over the bank and started in to do 
business. Our business at first was mosth' with the farmers, with 
our $3,000. There is another thing I want to say in this connection : 
We soon found when we made our mortgage business go that a large 
part of our deposits would be from loans. We would make a loan 
to a farmer for $2,000. We would say to him, "What do you want 



RUKAf. CREDITS. 239 

this money for ? " " Well, I want to build a barn or I want to put 
so many acres more in cultivation; to build this or that building." 
"All right, we will lend you the money, but you have got to leave 
$1,000 out of that $2,000 ' on deposit ' until your buildings are in such 
shape, until we can see that you are using the money for the purpose 
for which we made the mortgage "; and we had to credit his account; 
it went on the books as a deposit, and that is the way it will have to 
be under this system. If a mortgage is made you can not use your 
" bond " until your mortgage is actually made ; and if you only 
allow " half of the capital and the surplus " to be in deposits your 
loans will soon fill you up ; you would find that your own cash, the 
cash you are furnishing to the farmer, must under such a rule be de- 
posited elsewhere, because you have got his mortgage, and you are 
bound to deposit his money somewhere until it is checked out for 
improvements or to make final payment for the land. 

Mr. Weaver. That will be checked out in a little while. 

Mr. Sctjdder. Yes; certainly. That will be checked out in time; 
but every day and every week it happens, and you will soon accumu- 
late these deposits. 

Senator Hollis. When was this that you had this experience in 
Minnesota ? 

Mr. Scudder. In the eighties. 

Senator Hollis. That was before they had this serious trouble 
that our eastern ban^s got in from the western banks— I think that 
was in 1893. 

Mr. Scudder. Oh, yes, sir. I went to Texas in about 1886. 

Senator Hollis. Most of our Eastern States passed restrictions 
after the experience in 1893 about farm loans, but they are doing 
a large business now. 

Mr. Moss. Mr. Chairman, let me ask Mr. Scudder a question or 
two. 

I want to say that I am very much interested in his analysis of the 
earnings matter, because our commission gave a good deal of live 
attention to that. Under the banking laws the national banks very 
frequently have an arm of the business, a trust company doing an 
entirely different business. Do you see anything in this bill that 
would prevent one of these mortgage banks from being operated in 
connection with or on practically the same scale with a small bank 
which is doing a general banking business ? I do not mean precisely 
the same capital, but is there not the same relationship that there 
would be in the national bank and trust company under the existing 
law? 

Senator Hollis. You mean to have two separate organizations 
under the same roof? 

Mr. Moss. I wanted to get, Mr. Chairman, Mr. Scudder's idea. 
We know that there is considerable consolidation of skill already in 
banking. For instance, that where one bank does one kind of busi- 
ness and is prohibited from doing another, that there is a community 
of interests. There is no question but that one of the very pertinent 
questions about this legislation is the question of supplying personal 
credit in the mortgage-loan business. I want to call Mr. Scudder's 
attention to this feature : The question has been revolving around in 
my mind quite a bit, leaving the provisions here prohibiting deposits, 
except in just a sufficient volume to do their incidental business, and 



240 RURAL CREDITS. 

making them a pure mortgage bank. Does that, of itself, prohibit, 
if there was a bank of $10,000 capita] in a community later on au- 
thorizing the formation of a small bank to take up the personal credit, 
using the same skill and clerical help, to carry on these two businesses 
even if they in the law were kept separate in some way, just as the 
oational banking business is now carried on? 

Mr. Scudder. Well, theoretically perhaps, but you would have to 
L r o still further down to answer that question. If a national bank of 
--.000 as now organized under the Federal system were allowed to 
own such an institution of $10,000, and manage it, that would be quite 
possible. It could take, say, 51 per cent of the stock of this $10,000 
concern, and let it have office space and practically conduct it that 
May. You mean that, I take it? 

Mr. Moss. No, sir. That was not the meaning that I had in mind 
at all. 

Mr. Scudder. How are you going to run the expenses of the bank 
without the other bank being interested in that way? 

Mr. Moss. I feel very much this way. Mr. Chairman, in working 
out this plan. In the first place, the profits of the business, I believe, 
would be fixed. We found no banking institution doing a mortgage 
business in Europe on the process outlined in this bill but what had 
capital income. Part of that income comes and always will come 
from incidental expenses connected with the mortgage business. 
There is always a profit in the buying and selling of bonds, wdiere 
they fall below par, and there is always some incidental profit that 
will always come with the mortgage business. I believe when per- 
sonal credit is finally established, it will be established entirely, I 
think, upon separate lines, and will be an association among farmers 
and one for the mortgage business. There will be close relationship 
between those who conduct those two businesses, and I think it is 
entirely possible and entirely legitimate, and so I believe. Mr. Scud- 
der, in talking about income and going into a community where there 
is possibly no growth, where there is no bank, but possibly where 
it can be organized, that it is not taking the most charitable view 
that can be taken, because there are but very few communities where 
a bank will be finally limited to $10,000 and no growth; and in this 
community there will be very little chance for deposit business, any- 
how, and in those communities, when the personal credit is finally 
passed, it would probably be well to be joined together by men inter- 
ested in the same business. 

Mr. Scudder. Is it not a fact. Mr. Moss, that under this bill the 
" cooperative plan " allows unlimited deposits ? 

Mr. Moss. Only from its own members. 

Mr. Scudder. I am asking that question. 

Mr. Moss. Yes: limited, but only from its own members. 

Mr. Scudder. Under the cooperative plan. then, these deposits can 
be taken in "unlimited amounts/' I believe that therein lies the 
solution of the rural-credit system. Why not also allow the "joint- 
stock plan " the same privilege? I believe that is the very thing that 
is going to solve the whole problem in this country. 

Mr. Moss. That is the practice of the joint-stock business, because 
of the view of persons that hold stock in the joint-stock banks. 

Mr. Scudder. There are four stockholdings to one, comparing 
these two plans side by side, so that if it were possible to carry out 



RURAL CEEDITS. 241 

such a rule the cooperative bank would have four times the number 
of depositors. 

Mr. Moss. The very end you are speaking about is made possible 
under the cooperative banks under the terms of the bill. I mean the 
very criticism you bring in about the " deposits " is in the terms of 
the bill. 

Mr. Scudder. Yes; it is; but I call attention to the fact you are 
not going to get very many " cooperative banks " — mutual banks — in 
the United States until the United States gets more settled. It takes 
close association. 

Mr. Moss. I would not agree with that view of it, because I think 
that cooperation depends upon not closeness or . contiguousness of 
population. I do believe, however, it comes from general intelli- 
gence, and also in experience along that line — confidence more than 
the fact of being a compact community. 

Mr. Hayes. What you say is demonstrated by our experience in 
California in our fruit associations, scattered all over the State of 
California. 

Mr. Scudder. It might do in the fruit business or in the milk busi- 
ness, but it will not do in the " banking business," take my word for 
it. The banking business is a personal business, and you have got to 
know your man. You have got to know your man personally; you 
have got to be personally acquainted with his character, to see him 
face to face, and you can not compare the fruit business with the 
banking business. 

Mr. Platt. Why is it that there have been mutual savings banks 
organized all over the country? 

Mr. Scudder. Why is it ? 

Mr. Platt. Yes. 

Mr. Scudder. I think I explained that in the statement I made. 
Only in the communities that are thickly settled you get your strictly 
mutual savings banks, mutual banking corporations. 

Senator Hollis. Now, we have two other witnesses who would like 
to get away. 

We will hear Mr. Brooks. 

STATEMENT OF PROF. T. J. BROOKS, AGRICULTURAL AND 
MECHANICAL COLLEGE OF MISSISSIPPI. 

Senator Hollis. Will you state your full name, Mr. Brooks? 

Mr. Brooks. T. J. Brooks. 

Senator Hollis. What is your residence and occupation ? 

Mr. Brooks. Agricultural and Mechanical College of Mississippi. I 
am a member of the faculty. I represent the college and the Na- 
tional Farmers' Union. 

Mr. Chairman and gentlemen of the committee, I wish to begin the 
discussion of this subject by trying to get at what we mean in using 
certain terms. What do we mean by rural credits? In short I would 
say that we mean a system of banking which furnishes accommoda- 
tions suitable to the demands of. agriculture. 

What are its purposes? To make it possible to mobilize agricul- 
tural security and provide an adequate system of rediscounting agri- 
cultural paper, or, in case of Government subvention, to render avail- 
able funds provided by the Government — the expenses to be limited 

37031—14 16 



242 RURAL CREDITS. 

to actual cost of operation, including interest on hired capital. The 
end in view being to (1) increase production, (2) cheapen distribu- 
tion, (3) check overurbanization, (4) promote home ownership and 
general welfare. 

There arc two main divisions of the subject : (1) Long-time loans on 
land, (2) short-time loans on personal security. Many foreign coun- 
tries furnish us notable examples with many subdivisions of both 
of these kinds of cooperative credit, and also of credit backed by 
Government aid. Of the land loans systems we have the " Land- 
schaften of Germany, the Credit Foncier and the Credit Agricole of 
France, the Government loans to farmers in Denmark, and loans by 
the English Government to the farmers of Ireland. Of the short- 
time credit systems we have the Schulze-Delitzsch and the Raiffeisen 
banks of Germany, and the Credit Agricole banks of France. There 
is not a Government in Europe that has not developed some of these, 
or modifications of them, for the benefit of agriculture. 

Evidences of need of rural credits. — Before we go into a discussion 
of the ways and means or rural credits let us take a survey of the 
situation and see whether we are in need of such an innovation in 
our banking accommodations. In round numbers we have $140,- 
000,000,000 of wealth, $40,000,000,000 of which is classed as agricul- 
tural. Of this agricultural wealth $14,000,000,000 is owned by others 
than farmers; we have 1,903,289,600 acres of contiguous territory, 
6,361,502 farms, containing 878,798,000 acres, of which 478,452,000 
acres are improved. The land in farms represents 46 per cent of 
the total land area, while the improved land represents somewhat 
over half, or 54.5 per cent, of the total acreage in farms. The 
average farm contains 138.1 acres, of which 78.2 acres are improved. 
Our farm property increased in price from 1900 to 1910 100 per 
cent. Its productive power by no means doubled. Our population 
increased during the decade 21 per cent. On page 285, chapter 10, 
Thirteenth Census Abstract, we find that the number in 1910 was 
6,353,323, an increase of 624,130, or 10.9 per cent. The number oper- 
ated by owners in 1900 was 3,643,323 ; the number operated by owners 
in 1910 was 3,948,722, an increase of 295,399, or an increase of 8.1 per- 
cent. The number of farms operated by tenants in 1900 was 2,024,- 
964; the number operated by tenants in 1910 was 2,354,676, an in- 
crease of 329,712, or 15.3 per cent. Tenant farms constituted 25.6 
per cent of all farms in 1880, 28.4 per cent in 1890, 35.3 per cent in 
1900, and 37 per cent in 1910. 

In the States of Kentucky, Tennessee, Mississippi, Louisiana, 
Texas, and Oklahoma tenant farms have increased from 35 to 51 per 
cent during the last 30 years. In Texas 55 per cent of the farms are 
operated by tenants; in South Carolina, 63 per cent; in Mississippi, 
and Georgia, two-thirds of the farms are tilled by those who have no 
share in their ownership. The alluvial bottoms of the Yazoo Valley 
in Mississippi furnish the finest cotton land in the world. There 
are eight counties in this section where there were in 1900, 3,004 
farms operated by their owners and 25,750 by tenants. In 1910 the 
number operated by owners was 3,506 and the number operated by 
tenants was 42,618. In terms of percentage, 89 per cent of the farms 
were operated by tenants in 1900 and 92 per cent in 1910. The per- 
cent of farm tenants in Illinois in 1880 was 30, and at the present 
rate of increase by the next census it will be 50 per cent. 



RURAL CREDITS. 



243 



Production. — That something has gone wrong with agriculture is 
also evidenced by the relative decrease in agricultural production. 
Our per capita of production of cereals in 1899 was 58f bushels; in 
1909 it was 49£ bushels. Our exports of food products dropped from 
1900 to 1912 $127,400,000 worth, and similar imports increased $111,- 
420,000 worth for the same dates. Tennessee, my native State, pro- 
duced less cotton, oats, wheat, cattle, sheep, and swine in 1910 than in 
1900. 

Overurbanization.—We have the problem of overurbanization con- 
fronting us. The ablest living historians claim that this wrought the 
destruction of Kome. We have developed our industries in a lop- 
sided fashion, without the proper poise and balance to insure general 
and permanent prosperity. 

There are a lot of reasons why people leave the farm. One of 
them may be illustrated by the fact that the young farmer with no 
money to begin with can hardly hope to be the owner of a decent 
home by working it out on the farm. The average farm wages in 
the upper Mississippi Valley, where wages are highest, are less than 
$30 a month. At the present price of farms in the most productive 
States of Illinois, Indiana, and Iowa if the wageworker saved every 
dollar it would take him from 35 to 45 years to earn enough to own 
an average farm. Half of the number of those holding the plow 
handles in the United States are homeless. 

And during the last decade the number of farms has materially 
decreased in our best farming States. 

Number of farms. 



State. 


1850 


1860 


1870 


1880 


1890 


1900 


1910 




93,896 
76, 208 
14,805 


131,826 
143,320 
61,163 


161,289 
202, 803 
116,292 


194,013 
255, 741 
185,351 


198, 167 
240, 681 
201,903 


221,897 
264, 151 
228,622 


215,485 




251,872 


Iowa 


217,044 


Total 


184,909 


336, 309 


480,384 


635, 105 


640, 751 


714,670 


684,401 



Agriculture compared with manufacturing. — As compared with 
other kinds of business, farming makes a very poor showing. Ac- 
cording to the estimates of the present Secretary of Agriculture 
farming in the United States pays only an average of 5 per cent. 
We see by our statistics a different story in manufacturing. The 
total number of manufacturing establishments in the United States 
exclusive of the hand and building trades, the neighborhood indus- 
tries, and those whose products were less than $500 per annum in 
value, except in the cases of factories just starting or idle during 
part of the year, was 268,491 in 1909, an increase of 52,311 over 
1904. The capital invested rose from $12,675,591,000 in 1904 to 
$18,428,270,000 in 1909. 

We see from these figures that the manufacturers had, in 1909, 
$18,428,270,000 invested and turned out a product valued at $20,627,- 
052,000. And the number of hands employed was 6,615,046 at a wage 
cost of $3,427,038,000. The farmer had $40,000,000,000 invested, em- 
ployed 12,500,000 hands, and produced only $9,000,000,000 worth 
in 1911, valued at the farm, which was the largest crop and of 
greatest value of any ever produced. According to the last census 



244 RUEAL CREDITS. 

abstract, page 265, we find that we have an urban population of 
42,623,383, and a rural population of 49,384,883. So that more than 
half our population is rural. I see it estimated that the appropria- 
tions directly for the department representing this class is only 2 
per cent of the whole. This does not mean, of course, that other 
classes get all the other 98 per cent, because a great part of it is 
as much for the farmer as for anybody else. 

Is it not astonishing, not to say alarming, that the status of farm- 
ing should be what it is after the recent developments in the science 
of agriculture and the achievements in scientific farming? There 
are agencies at work destroying the foundation of rural prosperity. 
The situation as it confronts us throws out a bold challenge to the 
statesmanship of the age. We may lay all the blame we please on 
the individual farmer for unfavorable conditions here referred to, 
but the fact remains that there must be a fundamental error in our 
economy where the tendency is toward the elimination of the farmer 
from the self-dependent class. Whatever Congress has power to do 
to remedy the unfortunate condition is evidently not confined to ap- 
propriating money to encourage farmers to produce more. In the 
most productive parts of the country we find conditions which baffle 
the most astute who wish to devise means that will render tolerable 
and attractive conditions on the farm for the young farmer who is 
born and reared without a legacy. Of our 49,000,000 of rural popu- 
lation it is estimated that we have, in round numbers, 13,000,000 field 
hands, 4.000.000 of whom are wageworkers or hired men. These, 
taken with the tenants, constitute more than half the actual field 
workers in this country. The average farm wages in the upper 
Mississsippi Valley, where farm wages are highest, is less than $30 a 
month ; and at the present price of farms it would take a farm wage 
earner in Illinois 35 years to work out an average farm and never spend 
a cent. In Indiana it would take 40 years; in Iowa it would take 45 
years. These young men and their sisters are leaving the country 
for the cities. If a young man wants to buy a home he must go to 
the banks or insurance companies for the money and have a goodly 
portion to pay down before he can negotiate a loan. The rate of 
interest takes his profits and he sees no way to ever pay out. 

What are the suggestions offered as a solution to the problem? 
Taking lessons from the Old World we have studied rural credit 
systems to find a remedy. We find the long-time loan for land 
credit and short-time loans for personal credit which are run on 
plans different from anything we have in this country. We also 
find that conditions are so different that the most we can do is to 
appropriate the idea and work out a system of our own, adapted to 
American life and American institutions. 

It depends upon what class of people you wish to reach as to 
which measure will appeal to you as the best. Numerous bills have 
been drawn and introduced. I have read several, but not all of them. 
So far as I hav examined them they have really different motives 
in view. The bill formulated by the United States commission is a 
national land-bank measure. If this bill is to be the basis of your legis- 
lation I would suggest some important amendments. I would amend 
it by limiting the amount loaned to any one man. I would also 
limit the loans to those living on their own land. I would restrict 



EUEAL CREDITS. 245 

loans to specific purposes. I Mould limit the amount of hire paid to 
stockholders for the use of capital to G per cent, and this to go only 
to capital paid in. 

I would also provide for short-time loans, for open-account loans, 
and this could be done by providing that members of these banks 
should have their mortgages received by the land bank on condition 
that it was to be the basis of a short-time loan rather than a long- 
time loan, and they could make arrangements with ordinary com- 
mercial banks, which would secure money for a short time, with their 
mortgage in this land bank as a basis. Now, you might say, " Why 
would that be worth any more to an individual mortagee than the 
individual commercial bank at present ? " I should say, in answer 
to that, " Because of the laws that must be passed in the various 
States before this land-bank law could take effect, you would 
have a system of change of land titles, registrations, and exemptions 
that would enable this farmer to render his farm a liquid asset for a 
short-time loan, which he can not now do under the various State 
laws. 

This bill is evidently drawn strictly for the benefit of landlords 
and incidentally by filtration to reach the less fortunate neighbor. 

Mr. Bulkley. Which bill is that? 

Mr. Brooks. This is the bill that is framed by the United States 
commission, introduced in the House and Senate. 

It simply places the landowner on the same footing with the 
stockholder in a corporation. He can bond his assets and secure 
money on the most favorable terms that the money market will 
afford. But the plan should not lend itself to land speculation. For 
this reason the loan should be limited to the resident or actual opera- 
tor of the farm. You must be worth at least half the value of the 
farm before you could avail yourself of the privileges of this bill. 

Is bonding dangerous? — Quite a number of people are shocked at 
the thought of making it easy for one to go in debt on easy terms, 
and that, too, by abolishing exemptions. Moralize against debt all 
we will, it is quite evident that those who have succeeded in floating 
the heaviest debts have gathered the harvest. It all depends upon 
the relation of the cost of the debt to the profits of the business. 

The farmers owe about $3,000,000,000, of which $2,000,000,000 is 
backed up by mortgages already. The public debt of all the nations 
of the earth is estimated by the Bureau of Universal Statistics at 
$42,960,000,000. 

From returns made directly to the Wall Street Journal by the 
various treasurers it is shown that the governmental expenditures 
in all the States have risen from $189,000,000 in 1*901 to $423,000,000 
in 1911. At a similar rate of increase the country and municipal 
taxes rose from $912,000,000 in 1901 to $2,082,000,000 in 1911, mak- 
ing a total for State and local purposes of $2,505,000,000. Add to 
this the expense of the Federal Government of $650,000,000 and we 
have for yearly governmental expenditures alone the stupendous 
sum of $3,155,000,000. Most all of our big corporations and trusts 
are heavily bonded, or mortgaged, or both. The most prosperous 
farming district of the United States is heavily mortgaged. The 
most important agricultural section of the United States is the up- 
per Mississippi Valley. In the States that would be touched by a 
circle of 500 miles radius, with center at Chicago, is found 23 billion 



246 RURAL CREDITS. 

out of the 40 billion dollars of all farm property in 1910 and 53 per 
cent of all the improved farm land in the United States. These 
States raise considerably over half of the live stock in the United 
States and $1,800,000,000 out of the $2,700,000,000 worth of cereals. 
To express this in percentages this area contains 57.7 per cent of the 
value of all farm property, G0.7 per cent of the value of all farm 
lands, 51.3 per cent of all the cereals as measured by value. If 
we exclude cotton, as confined to the southern territory by climatic 
conditions, the overwhelming predominance of this section would 
be even more evident. Nor is this domination declining with the 
development of other sections of the country. On the contrary, it is 
growing greater with each succeeding census. This territory 
gathered to itself GO per cent of the value added to farm property 
during the last decade. 

Eighteen of the leading insurance companies of the United States 
have loaned on farm mortgages in the various States the sum of 
$414,000,000. Of this sum the State of Iowa has absorbed more than 
one-fourth, or 25.5 per cent; Kansas is using 8.8 per cent; Nebraska, 
9.9 per cent; Missouri, 8.6 per cent; Minnesota, Indiana, and Illinois, 
7.1 per cent each. The farmers in these States have been able to 
make more than the interest charge on their debts. If the bill pre- 
sented by the United States commission were passed, perhaps most 
of these mortgages would be shifted to the land bank. Then, the 
insurance companies would invest in the bonds instead of holding 
the mortgages direct. People who own farms but have moved to 
town, for one reason or another, and live on the rent from the land, 
would be inclined to sell the land and invest in land bonds rather 
than see the land depreciate in value because of neglect by renters. 
But I am solicitous for those whom this scheme would not reach. 
Is there no record in the annals of history where Government went 
to the relief of the lowly? Can the Government afford to set the 
example of doing such a thing? 

I consider Mr. H. W. Wolf the greatest living authorit}' on rural 
credit, and in his address before the American and United States 
commissions at Dublin, in speaking of personal-credit banks, said: 

I do not think the Government should interfere in their work, and to show 
what State interference will do I want to tell you what happened to a Prussian 
Raiffeisen bank through State interference. In 1895 a State-endowed bank was 
formed in Prussia to finance a cooperative credit society. Up to that time the 
Raiffeisen unions had been solvent. In 1895. when this bank was formed, they 
said, "No; we don't want any assistance; we have money enough, and we ask you 
for nothing." However, the financial people brought pressure to bear, and 
eventually they entered negotiations, and consequently they rather overrated the 
amount of money at their command, and a few years later found themselves 
In very serious difficulties. They had speculated and had some pretty hard 
times. They got out of it only by rather heroic methods, and I do not think 
there will be any losses in the end. for the contributions of the societies will 
be repaid. Now, that these Raiffeisen institutions are free from State aid 
they are doing well again. 

Go about it privately and you will find that even the Imperial Federation, in 
Prussia, which relies on State advance, is heavily impoverished with the inter- 
ference it has to submit to. For what the State gives it asks about 10 times 
the amount in return. The head of this union complained to me in 1S98. " We 
can not stand it any longer." There followed rebellion; and when the State 
wanted to tighten the strings the unions grew very restless and said, " We will 
make ourselves independent. We have £150.000, and we will throw off this 
Government yoke." The only banking aid they had open to them was the State 
banks, so they went to the Raiffeisen Union to try and make its societies the 



RURAL CREDITS. 247 

collective agencies for its own work, and in return to act as agent for them and 
cash their bills; but the Raiffeisan societies would not consent to this. Then 
they went to an ordinary joint-stock bank, one of the largest in Germany. This 
institution does not tie them to exclusive business ; and to both parties this is 
a far more satisfactory arrangement. Even the tradesmen societies, which have 
been favored in every respect, opeuly say they would like to break with the 
State. 

In France you have seen the system of the Credit Agricole; there is unrest, 
and the result of the State aid has not been what they had expected. I under- 
stand that you have visited some of the French banks where they really have 
accumulated a reserve fund. That is what State aid is intended for ; but only 
in one or two districts has it actually been done. A select committee of the 
French Chamber of Deputies, reporting recently on credit to be given to the 
trading classes, points out that in agricultural banks supported by the State 
in France the people did not repay as they should. The money being advanced 
by the State, according to this report, some of the people did not expect to have 
to pay it back. 

I hear the banking interests of the United States are distinctly opposed to 
the introduction of cooperative banks, and I think, if it is so, that the banking 
interests of the United States are very shortsighted. Banking people 20 years 
ago gave us a lot of trouble in Ireland about savings banks, but now everywhere 
we find among the more intelligent bankers a friendly feeling toward the coop- 
erative banks. The cooperative banks come into the field not as competitors 
of the commercial banks but as feeders for them. People who want to do bank- 
ing should go to the cooperative banks. In Italy it was the cooperative banks 
that stimulated progress and brought banking up to date. I do not think there 
Is any danger in this country, or in the United States, of cooperative banks 
becoming rivals of the ordinary commercial banks. 

But Mr. Wolf is not opposed to Governments doing as Denmark is 
doing. Allow me to quote from page 551 of the report of the Ameri- 
can commission : 

By Mr. Waage. I shall give you a report of the small farmers' credit in this 
country under the control of the Government and aided by Government loans. 
In 1899 the Government called this system into existence — first, for a period 
of 5 years and later renewed for 5 or 10 years. The State has put at the 
disposal of the people who want to start small farms some millions of crowns: 
it started with 2.000,000, and now it has been increased to 4,000.000, per year 
at 3 per cent. The loaus the Government has granted in this way amount to 
25,000,000 crowns. 

Neither does Mr. Wolf oppose the policy of England in her deal- 
ings with the Irish peasants, in helping them become home owners. 
On page 865 of the report of the American and United States com- 
mission we find the following: 

Some of the facts elicited are as follows: The estates commission of three 
members, appointed for life, had its origin in the Windham Act of 1902, dealing 
with the division and purchase of estates by tenants. Tbis commisson now 
bandies about £8,000,000 per year, all used for the purchase and division of 
estates. 

These estates may be purchased at a voluntary sale from the owners or 
(within the area of the congested districts board) the sale may be made on 
compulsion. At present the sales are almost all voluntary. Since its inception 
the estates commission has purchased and resold about 8,000,000 acres, valued 
at £90,000,000. 

The congested districts board is a larger commission, also nominated by the 
Government, and has for its object the division and sale of estates in nine 
western counties of Ireland, where the congestion of tenants was such that 
ihe cottager was unable to make a living on his small parcel of ground. This 
board has purchased land worth perhaps £3,000,000. of which it has sold about 
£100,000 to date. 

The procedure is about as follows: A large estate, perhaps entirely in pas- 
ture land, is put up for sale. The officials appraise it with reference to its pro- 
ductiveness. If the price asked by the owner is satisfactory the estate is pur- 
chased, and the owner paid in Government land, scrip, or stock bearing 3 per 
cent interest. Hitherto the voluntary seller has been given a bonus of 12 per 



248 RURAL CREDITS. 

cent of the purchase price, hut this bonus seems to have been withdrawn 
recently. 

Estates sold under compulsion the Government must pay for in cash. As 
;i matter of fact, there are three methods of paying for bind: («) in stock, the 
usual and immediate payment method; (6) in cash, an option which is rarely 
resorted to, since the prospective seller must in this case await his turn, for 
cash sales are often very long delayed; (c) or partly in cash and partly in scrip. 

Once purchased, the estate is divided into tracts of 25 to 30 acres; line walls 
are built if necessary, a house is constructed at a cost of about £200. and the 
place is sold to a tenant, preferably a former tenant on the estate, sometimes a 
purchaser from some other district. Since there are frequently 25 to 40 appli- 
cants for each holding it is not difficult to find honest, capable, industrious 
purchasers. Very often an estate is purchased by the tenants thereon by 
mutual agreement with their former landlord as to purchase price. The Gov- 
ernment buys the estate, pays the landlord in stock or scrip, and sells it in 
small holdings to the tenants who thus become the debtors of the State. 

The small holder, who may have no capital — and seldom has enough to stock 
the holding — pays at present 3 per cent interest on the purchase price and 
one-half of 1 per cent amortization, or a total of 3§ per cent, payable in semi- 
annual installments. This rate amortizes the debt in about 62 years. The 
purchaser is given a title to the land, pays taxes on it, and may transfer his 
equity at any time if he chooses. 

Out of £90,000,000 sold the failures to pay the installments promptly have 
been inconsiderate. In the county of Cork the defaults have been nil. In case 
of default or failure the installments are paid out of the county exchequer, 
hence the tendency to pay promptly is warmly applauded and the slow payer is 
frowned upon. The results of this system seem to be excellent. 

We find on page 662 the following from Mr. Dop, vice president 
of the International Institute of Agriculture: 

Agricultural credit in France is cheap; and this, in my opinion, is one of its 
most important features. 

The problem of how to discount agricultural paper at the lowest possible 
rate is the real difficulty in any agrcultural credit system. To rescue the 
farmer from the evils of mortgage credit, often from the bondage of usury, 
and to secure him loans at a lower rate of interest than is usually required by 
ordinary banks would seem to be a difficult and even an impossible task. Yet 
the problem has been solved in France in a most practical and profitable 
manner, as the rate of interest charged the farmer varies from 2 to 5 per cent, 
according to the length of time for which the loan is made. 

To organize agricultural credit so that it may be adaptable to all the require- 
ments, to all the needs, to all the incidents which may arise in the complex 
business of the farming industry is an ideal which it would seem difficult to 
attain without derogating from basic principles and without weakening the 
very foundations on which the edifice of rural wealth reposes. Yet this seeming 
impossibility has been rendered possible, thanks to the good will and the ability 
of our legislators and thanks more especially to the suppleness of the organiza- 
tion which they have built up to meet the varied needs of our farmers. 

If Monarchies and Republics in other parts of the world can step 
down from their lofty perch and do these things, and we can not, 
which do you suppose will appeal to the people of this class as the 
better government for them? It is not philanthropy; it is not 
charity ; it is not giving anything to anybody ; it is statesmanship. 

However, we all know that to go into recldess loans loosely ad- 
ministered would result in a calamity. We should not develop a 
hothouse nursery for the incapable, neither should we ignore and 
neglect so important a part of our population as those who produce 
half the food and the raw material for the raiment that is produced 
in the United States. Every other bite you eat comes from the 
bounty of their hands; every other article of raiment you use comes 
by the sweat of their brows. 



RURAL CREDITS. 249 

Need of laborers. — If some one should say that Ave would have 
no laborers if they were allowed to own land of their own, I will 
say that when I hear of the dearth of labor I rejoice; for I know that 
means that all who are worthy are employed. But when I hear of 
millions out of work I am alarmed. I know there is wretchedness 
and danger. Old Rome used to try to solve the unemployed prob- 
lem by using them in the cities on public works and private extrava- 
gance, with feasts and amusements thrown in. We all know how 
much of a remedy that was. 

I wonder if any of you surmise that patriotism is dying from 
the disinherited, the submerged, within the confines of this Govern- 
ment? How could it be otherwise? Revolutions are landmarks of 
bad statesmanship. 

Source of funds. — If the Government should advance money, how 
should it be obtained ? That depends upon whether we have sufficient 
money to answer the demands or not. It can be secured by deposits 
from the Treasury, by selling bonds, or by the issue of Treasury notes 
in like manner as is provided under the new banking and currency 
act which is to answer the needs of purely commercial business. 

Class legislation. — We expect the charge of class legislation is 
to be presented. It all depends on what we define as class legisla- 
tion. If it means legislation that is for one class at the expense 
or to the injury of another, then this is not class legislation. If 
class legislation means legislation that favors one class without 
injury to another, this is class legislation. If class legislation means 
legislation that benefits one class with indirect benefits to another, 
then it is class legislation. I wonder how many laws are on the 
statute books that do not come under the head of class legislation 
under such constructions. 

(A recess was taken until 2 o'clock p. m.) 

AFTER RECESS. 

The committee met at 2 o'clock p. m., Hon. Robert J. Bulkley 
presiding. 

Senator Hollis. Mr. Brooks, you were cut off this morning. If 
there were any other observations you would like to make, we would 
be glad to hear you. 

STATEMENT OF PROF. T. J. BROOKS— Continued. 

Mr. Brooks. Mr. Chairman, I really was through with my main 
statement, but I would like to submit a report which was adopted 
at the last national convention of the Farmers' Union on this point, 
and let it go into the record on the question of long-time land loans. 
It is as follows : 

We could have a system whereby the Government would provide a sum of 
money to be loaned at the same rate of interest that the Government pays on 
its bonds, plus a fraction of a per cent to cover cost of administration. This 
fund to be made available for the purchase of land by the homeless on the 
amortization basis, to be furnished through rural banks organized for the 
purpose under laws providing for the same; no man allowed to utilize it for the 
purpose of purchase of land who has at present more than a specified number of 
acres. This would put at the service of the homeless a fund of money at a 
rate below the net increase possible to produce from the farm. At present 



250 EUEAL CREDITS. 

loans mii real estate en I up all not profits and make 11 almost impossible for the 
purchaser to liquidate his debts, principal, and interest in the length of time 
that is allowed for such loans. 

In the ease of the landowner who wishes to borrow money for the better 
equipment of his farm, this could be provided for by the Landschaften system 
of pooling of land and issues debentures based on the collective guaranty. This 
would place a landowner on equal footing with all the great corporations 
which utilize the sale of bonds as a means of securing capital. 

SHORT-TIM K I OANS. 

The advantages to the fanner of the open account has been demonstrated by 
the rural credit systems of the Old World. The American farmer has never 
had the privilege of the open account. He should be allowed to comply with 
the requirements of securing the privilege of borrowing on daily balances at 
a fraction of a per cent above the rates allowed on deposits. If he does not 
choose to avail himself of the privilege, he is not obliged to, but it is manifestly 
unjust and unfair not to give the American farmer the same privilege that is 
granted the commercial world. The excess of interest that is paid by farmers 
over commercial men is enormous, and forces them in many instances to run 
store accounts, buy on credit from year to year, pay a premium for this 
credit, and thereby submit to an enormous tax, which is a continuous drain 
upon the borrowing element of the agricultural class. Where the advantage of 
rural credits is provided the farmer with unimpeachable character can secure 
money for his necessities at a fraction of a per cent above the rate allowed on 
deposits. This enables him to pay cash for his purchases and eliminate the 
credit system. 

This system of banking could be provided either by State or National 
legislation. Three States have already passed laws providing for such system 
of rural banking, namely, Massachusetts, Texas, and New York. In order 
to provide an adequate system of rediscounting necessary for the operation 
of rural credit banking it needs to be national in scope. For this reason a 
national law governing such system of banking we think, would be necessary. 
Under this law could be established a system that would coordinate the rural 
banks of the whole country under one system of rediscounting. 

Mr. Platt. Is that your statement? 

Mr. Brooks. It is a copy of extracts from the minutes of the last 
national meeting of the Farmers' Union, at Salina, Kans.. last Sep- 
tember, which I simply submit to go into the record. 

Senator Hollis. That will be made a part of the record. 

Mr. Brooks. As to the uses to be made of these credit systems, I 
would like to quote a paragraph from Mr. David Lubin: 

The farmers could then form another cooperative association, another cor- 
poration, their own cooperative bank, in which they could deposit the money ob- 
tained by the sale of Landschaft bonds. This bank could in turn first give the 
farmers the open account, which would enable them to do business for cash: 
it could, secondly furnish the money for the cooperative distribution of the 
products of the farm. All this would it make possible for the farmers to form 
the third and last cooperative group or corporation for the collective purchase 
of requirements and the collective distribution of their products. There would 
thus be three distinct cooperative groups, three corporations. First, the Land- 
schaft; second, the cooperative bank: third, the cooperative purchasing and 
distributing association. The safeguarding proposal by the State and Nation 
would only refer to the Landschaft and not to the other two. 

As I spoke of the different purposes involved at the beginning I 
read that as testimony of the uses that would be made of these 
different systems in case the farmers are allowed to organize ap- 
propriate banks, land banks, and by securing capital through these 
banks they can organize their cooperative selling associations, and 
thereby perform the carrying function which is now carried by mid- 
dlemen and speculators, or merchants, whatever you choose to call 
them, who buy the crops of the farmer and carry them until they 



EUEAL CREDITS. 251 

are needed by the consumer, pay the insurance, storage, and interest 
on money which they have invested, etc. Of course, the consumer 
has finally to pay it all. 

You take the cotton crop of the South. It is gathered and mar- 
keted, most of it, in two months, and the farmer can not perform the 
carrying function. He must sell it because he owes debts, and he is 
not financially able to carry it until the mills need it and by being 
allowed to finance his own operations he could become his own dis- 
tributor, and not in any sense of the word form a trust or monopoly 
or combination to influence prices, but to keep from flooding the 
market faster than the consumption demands it. There has never 
been a time when the farmer did not sell faster than the consumer 
would consume the staple products, so that he needs to have a system 
that will enable him to finance his selling organization, just as is 
done by the large manufacturers. The International Harvester Co. 
does not have to auction its stuff off. It has agents that solicit and 
sell their products throughout the world at their own prices and they 
can finance themselves. But there never can be a time when the 
farmer, as a class, can form and operate a trust as is done by the big 
industries, organized and operated by what we call captains of in- 
dustry, for this reason : To form a trust you have to have control of 
the supply. The farmer produces the supply, but he does not con- 
trol it. He does not control the amount that is to be produced. 
There is no way for him to dictate to any member of the farming 
class how much he shall plant of anything or how much of anything 
he shall produce. He has got to take that just as it comes from each 
individual's efforts, and then he has got to market it within a year, 
because another crop will come along and force him to do it. So 
he can not form a trust, as could be done by a concern that regulated 
the output and dictated the amount that is to be produced. So I 
think we would not need to have any fear that it would lead to his 
becoming an oppressive dictator in prices, because you give him the 
right and privilege under these systems to do his own financing. 

Mr. Bulkley. Mr. Brooks, I understand that you do not think 
that it would be of benefit to the country to increase the price of 
farm lands generally? 

Mr. Brooks. Well, I do not suppose that these measures that you 
have under discussion could really contemplate what the effect on 
farm lands might be, because that is incidental. I do not consider 
that it will change the value of farm lands in a great many places. 
In some few places it might. 

Mr. Bulkley. You said something this morning about the bill 
being drawn in the interest of the landlords. Was not that what 
you meant? 

Mr. Brooks. No : I meant that it could be used only by those who 
own the land. 

Mr. Bulkley. As a matter of fact, if you did reduce the interest 
rates generally on land-mortgage security, would not that tend to 
increase the prices of land? 

Mr. Brooks. Where land was exceptionally productive it might 
have that influence; but the most of this money would be used to 
increase production and not to buy land for speculative purposes. 

Mr. Bulkley. Do you mean that to be a suggestion that we make 
such restrictions? 



252 RURAL CREDITS. 

Mr. Brooks. Oh, it needs to be in the bill, so that it could not be 
used for speculative purposes. 

Mr. Bulklet. You would favor putting such a restriction in this 
bill? 

Mr. Brooks. Yes, sir. Land speculation does not produce any- 
thing, and it does not do anybody any good, except the man who gets 
the money. That does not do society, as a whole, any good. 

Mr. Bulkley. So that you would favor limiting the purposes for 
which these funds could be loaned. What would you limit it to ? 

Mr. Brooks. I would not want to risk naming all of them just off- 
hand; it might be reached by specifying what purposes it could be 
used for or by a process of elimination, that certain things it could 
not be used for. In European countries the limitation is not placed 
upon loans secured by land mortgages, but they are on all personal- 
credit loans through the cooperative banks. The rural credit banks 
require the borrower to state what he is going to do with it, and if 
he does not he eliminates himself as a borrower. 

Mr. Bulkley. That is on the short-time loans? 

Mr. Brooks. That is on short-time loans; yes. 

Mr. Bulkley. But in the long-time loans — how about that? 

Mr. Brooks. No ; they do not have it for the long-time loans. 

Mr. Bulkley. You would favor putting a limitation on the long- 
time loans, would you not? 

Mr. Brooks. Yes, sir. 

Mr. Bulkley. The Moss bill proposes that the purposes shall be 
limited to completing the payment of the purchase price of the land 
or to pay preexisting debt or to improve the land that is mortgaged. 

Mr. Brooks. I understand some of those have been put in the bill 
since it was first drafted. 

Mr. Bulkley. That is true. Are those good limitations, in your 
judgment? 

Mr. Brooks. They may be a little too restrictive. There are other 
things that the money ought to be allowed to be used for, I think. 

Mr. Bulkley. What else do you have in mind ? 

Mr. Brooks. A man often needs to stock his place, to go into the 
cattle business, and he needs equipment that he perhaps could not 
get unless he could get it by this method, and that will require him 
to develop that kind of business, and if we restricted him during the 
whole time of the loan, reaching 35 years, he could not directly use 
it that way. He would have to circumvent it by different invest- 
ments if he used it for that purpose. 

Mr. Bulkley. Do you think that a man ought to be allowed to 
borrow on long time, say, 35 years, for the purpose of buying equip- 
ment which is perishable? 

Mr. Brooks. It would not be necessary for him to borrow for that 
length of time, but he could borrow it for that length of time and 
pay it back earlier. 

Mr. Bulkley. He could, but the question is, What shall we allow 
him to do. That would be voluntary. 

Mr. Brooks. Well, if you have a short-time-loan provision in con- 
nection with that, then that ought to come in. When you have a 
short-time provision in it, it ought to come in under that head. 



RURAL CREDITS. 253 

Mr. Bulkley. I think that is true. What do you think of the 
estimates made by Mr. Scudder this morning about the expenses of 
these little local banks proposed by the Moss bill ? 

Mr. Brooks. I think he had his expenses too high. 

Mr. Bulkley. How would you estimate it? 

Mr. Brooks. You would find that it varied so much that you could 
not get a standard. In some places it might be, and I believe it would 
be, possible to get men to attend to that for what would be almost 
nothing. In other places they would be compelled to pay prices 
commensurate with the same kind of work of another kind of busi- 
ness. If it was located in a considerable sized town, you would have 
to pay more than in the strictly rural districts. Of course, we could 
not expect it to be carried on in such districts as cheaply as you could 
in a district where some public-spirited men might be found who 
would not charge anything. 

Mr. Bulkley. Would you expect that to be done in this country I 

Mr. Brooks. No, sir ; I would not expect it. 

Senator Hollis. In New England the mutual savings banks are 
very large institutions. I think that is the plan the one I am con- 
nected with is run on. The president, who usually has knowledge 
about investments, is paid a rather moderate salary. The treasurer, 
who actually has the handling of the funds and looks after the book- 
keeping, etc., has a fair salary. The trustees who are really the direc- 
tors of the enterprise and meet, say, once a month, get practically 
nothing. It may be that they get $1 or $2 for attending a monthly 
meeting. These trustees do that just as they would serve on a school 
board or any other position of honor in the community, and they con- 
sider it quite an honor to be elected to be a trustee of one of these 
mutual savings banks. And so I say that that sort of superinten- 
dence is given for that institution. Should you not expect to find 
that sort of feeling in every rural community to a certain degree? 

Mr. Brooks. In most communities you would find it, at least in 
some degree. I know of quite a lot of what you might call country 
banks that the president does not draw a cent of salary. He is very 
often a farmer who lives out in the country, and he is pretty well 
fixed and has money on deposit, and just to get his influence he is 
made president— he does not know anything about the business of 
banking. He gets no salary, but attends the meetings. But the 
banker, who is sometimes the cashier and bookkeeper and all-purpose 
man and does all the work of the bank, is paid a salary for his time. 

Mr. Bulkley. Of course, the president does not spend much time 
on it? 

Mr. Brooks. No, sir; except to seeing whether or not these farms 
are being properly cared for. There would not be so much work to 
attend to as in a land bank. 

Mr. Bulkley. How much do you think you would have to pay the 
right sort of man to do the active work of directing the affairs of 
one of those little banks ? 

Mr. Brooks. As I said, it would vary so that it would be impossible 
to fix a standard. Some places vou would get him for $100. 

Mr. Bulkley. Is that $100 a year? 

Mr. Brooks. Yes. And some places you would have to pay $1,000 
because of larger business and more expensive location. 

Mr. Bulkley. Would you have to pay as high as $1,000 '. 



254 RURAL CREDITS. 

Mr. Brooks. Some places you could not get a man to do it unless 
you paid him as much as he could make in that same length of time 
in another business. He hasn't any interest there, when there is no 
public-spirited man in the community — and there are communities 
with no such man in it. 

Mr. Bulklet. Do you agree with Mr. Scudder's idea that each loan 
ought to be inspected once a year? 

Mr. Brooks. It ought to be inspected, in most cases I would say, 
once a year. If you had a man who was thoroughly acquainted with 
all the community where the bank operated, that need not be neces- 
sary. In some communities there is a man who deals in cattle, who 
drives all over the country, or he may be the constable, or something 
of that kind; he could do this work, and he would know the condi- 
tion of everybody's farm and has known it for years. He could at- 
tend to it without hardly any trouble, incidental to his other duties. 
Mr. Seldomridge. Would you require a man who had made a loan 
with one of these banks to file a report each year as to his output? 

Mr. Brooks. That is a detail that I had not deliberated on much. 
I do not know that that would be a mistake. 

Mr. Seldomridge. I want to ask you another question. In youi 
statement to the committee in reference to the farming conditions in 
thet Yazoo cotton district of Mississippi, was that the district you 
mentioned ? 

Mr. Brooks. Yes, sir. 

Mr. Seldomridge. Is land there largely occupied by tenants? 
Mr. Brooks. Yes, sir. 

Mr. Seldomridge. Are they mostly negroes? 
Mr. Brooks. Yes, sir. 

Mr. Seldomridge. Are they of that class described here in the 
early stages of the hearings who were, in a certain sense, under con- 
tract with the storekeepers, or do they mortgage themselves from one 
year's end to the other with the stores? 
Mr. Brooks. A great many of them do. 

Mr. Seldomridge. What rate of interest do they pay for that ac- 
commodation? 

Mr. Brooks. Well, I could not state definitely, for, while I do not 
live in the Delta, those storekeepers that run those accounts some- 
times take enormous profits, as I know. 

Mr. Seldomridge. We know that. That was brought out in the 
hearing, but I did not know but what maybe you were familiar 
with it. 

Mr. Brooks. No; I could not give you exact data any more than 
in a general way. 

MrT Seldomridge. What is the prevailing rate of interest on what 
von might call short-time or chattel loans in that section? 

Mr. Brooks. Two years ago the State passed a law making 6 per 
cent the legal rate and exempting all accounts that ran at a rate 
below that "from taxes, and I do not know just what effect that has 
had. generally speaking, on the price of money. 

Mr. Seldomridge. What is the average-sized farm or plantation? 
Mr. Brooks. Do you mean in the Delta ? 

Mr. Seldomridge. In the Delta, yes; where these conditions exist? 
Mr. Brooks. I have not the figures to show how much they 
average. 



RURAL CREDITS. 255 

Mr. Seldomridge. How much is given to a tenant to cultivate — the 
average number of acres? 

Mr. Brooks. It would depend upon what kind of crop he is going 
to raise. 

Mr. Seldomridge. Cotton, for instance. 

Mr. Brooks. If he raises nothing but cotton, you mean? 

Mr. Seldomridge. Yes. 

Mr. Brooks. That varies; I would say, oh, from 12 to 18 acres, one 
hand. If he has machinery he could use that to advantage and could 
cultivate some more land. 

Mr. Seldomridge. What has been the success of the small farmers 
that have engaged in cotton raising; are they gradually merging 
into better conditions or have they been retrograding ? 

Mr. Brooks. Take the State as a whole ; it has been going down, be- 
cause it has been aggravated in the last few years by the boll weevil, 
and southern Mississippi farmers are in very bad shape. 

Mr. Seldomridge. What is the cotton land worth? 

Mr. Brooks. From $10 to $45 an acre. Of course, some of the 
Delta costs considerably more than that, 

Mr. Seldomridge. Is it easy to secure loans on that land ? 

Mr. Brooks. No, sir; the banks do not like to loan. 

Mr. Seldomridge. I beg your pardon ? 

Mr. Brooks. The banks do not like to make long-time loans. 

Mr. Seldomridge. Will they loan on short time? 

Mr. Brooks. They do not absolutely refuse. There is some of it 
done ; but they do not court it. 

Mr. Seldomridge, How do the men operate ; where do they get 
the money on land in Mississippi in the cotton belt ? 

Mr. Brooks. A great many of those big Delta farmers go to Mem- 
phis, make a contract with some wholesale supply house to furnish 
them with what they will need during the year — to furnish their 
hands, croppers, tenants, and hired hands — and they pledge their 
crop to some cotton commission man there to get these lonas, and the 
cotton has to be delivered to the cotton man, and he has no more to 
say about who is to get that cotton than somebody that did not raise 
it. They carry enormous amounts in that way. 

Mr. Seldomridge. Are there many banks in the smaller towns? 

Mr. Brooks. In Mississippi ? 

Mr. Seldomridge. Yes. 

Mr. Brooks. Oh, yes; we have, I suppose, a due per cent of small 
banks. 

Mr. Seldomridge. Do you think that the provisions of this bill 
would be of particular benefit in the particular section that you have 
been describing? 

Mr. Brooks. Well, the general principles involved in this bill will 
be the same benefit to the farmers in that country as they would any- 
where else, I suppose. The landowner would get the benefit from it. 
The men that did not own land could not get the benefit, and I guess 
most of the people in the State do not own the land. 

Mr. Seldomridge. A man to become a borrower under this bill has 
got to have the land first? 

Mr. Brooks. He has got to have the land or the equivalent, He 
has got to have at least half the value of the land before he can mort- 
gage it for the other half. 



256 EUEAL CREDITS. 

Mr. Bulkley. I do not quite understand how it would be possible 
to have a land-mortgage system without the mortgagor owning some 
of the land or being in the way to own some of the land. 

Mr. Brooks. You could not. All I said on that other proposition 
was to this effect, that there are places where the man who has no 
money or land is helped to be a home owner by the Government pur- 
chasing the land and then letting him buy it from the Government, 
like it was originally public domain. We have had millions of acres 
of public domain in the United States and sold it to actual settlers 
and handled it without any public scenes or scandal or any mishaps, 
and it could be done again. 

Mr. Seldomridge. Could he not buy it from anybody else? 

Mr. Brooks. He has got no way of buying it, because he has no 
money, no credit; that is to say, he has got no money to pay down, 
and he can not buy it unless he can make a part payment of a sum 
that would make the seller safe in delivering it over to him. 

Mr. Bulkley. Then the Government would be practically loaning 
him the full value of the land at the outset, according to your theory? 

Mr. Brooks. Yes, sir. The Government does that in Denmark, 
but it does not allow him to buy unless he has been a farmer for at 
least four years previous. In Ireland the Government buys the land 
outright and sells it to the tenant, and half of the area of Ireland 
has been bought under that law. 

Mr. Platt. In Ireland these men that are buying that land have 
been living on the identical land for centuries. 

Mr. Brooks. They are farmers, and it would have to be limited 
to farmers. 

Mr. Seldomridge. Have you made any calculation as to how much 
money the Government would have to advance in order to carry out 
that idea ? 

Mr. Brooks. No ; because you would not know yourself, and no- 
body would know just Iioav much would be called for, because we 
would have to have certain requirements, and I do not know how 
many would meet them. 

Mr. Seldomridge. You would either have to provide for it by the 
issuance of bonds or the issuance of Treasury notes. 

Mr. Brooks. Yes, sir. 

Mr. Seldomridge. Both of which would be a credit obligation of 
the Government. 

Mr. Brooks. Just as your currency contemplated under the new 
law is a credit obligation of the Government, which is for the service 
of commerce. 

Mr. Seldomkidge. It has back of it. however, a certain reserve of 
gold. 

Mr. Bulkley. Is there not a very great distinction there, Mr. 
Brooks? The security required in the currency law is 140 per cent 
of the currency issue. You arc proposing that we sell them the land 
without any security. 

Mr. Brooks. The question resolves itself to this: The bill which 
you have been considering contemplates helping the man who is least 
in need of help among the agricultural class. T say that that would 
result iu good both to him and to the man who is most in need of 
help, indirectly: but T still say that, as statesmen, you have got this 
problem face to face with you to deal with, either to ignore it or to 



KUEAL CEEDITS. 257 

do something with, that half of the people who produce the wealth 
of this country from the farm are not in position to utilize the ad- 
vantages of this measure. 

Mr. Seldomridge. Are we not helping the farmer, who has shown 
by his thrift and industry and intelligence, making a success of his 
work, has shown by his efforts that he is worthy of this confidence ? 

Mr. Brooks. If that had been the only farmer that Denmark had 
in consideration, they would never have enacted the laws they did 
for the fellow that did not have that confidence, and it would not have 
been worth anything to the Irish peasant if they had not gone further 
than that. 

Mr. Seldomridge. I think we are dealing with a different type of 
people in this country. 

Mr. Brooks. We are a different type of people only in one sense ; we 
are the same race, the same blood, the same kind of folks by descent, 
and a peasant is a peasant, whether he lives in the United States or 
Great Britain or France or any other place. 

Mr. Platt. I do not quite agree with you on that. 
Mr. Brooks. Financially, he is. 
Mr. Platt. I think they are very different. 

Mr. Bulkley. Let me see how far you would carry this. Suppose 
a man had served an apprenticeship of three or four years as a black- 
smith. Would you favor the Government buying him a blacksmith 
shop and setting him up in business? 

Mr. Brooks. If there is not anything in this beyond the helping of 
a class, there is no need for any legislation. 

Mr. Bulkley. That is what I am trying to find out. 
Mr. Brooks. Unless this applies to a condition that concerns every 
class, you are not justified in taking it up. If civilization is at stake, 
I think this kind of legislation is needed. It is not because the 
farmer as a class deserves any special laws; it is not because he as an 
individual is any more worthy of legislation at your hands than any 
other class ; it is not because he has any more influence, is any more 
important as a private citizen, but when you allow agriculture to go 
down it takes all others with it, and everybody's welfare is at stake, 
the welfare of the Republic is at stake, and the perpetuity of free 
institutions is at stake, and civilization is at stake, and it is short- 
sightedness for any class to get jealous of agriculture. When you 
see it drifting into tenancy, making nomadic farmers, drifting from 
place to place because they have lost all hope of ever being able to 
be home owners, it is time to call a halt. It drives country people to 
the cities and creates overurbanization, and it will take more radical 
measures than anything I have suggested here to right that in 
the end. 

Mr. Bulkley. Then you would give that privilege to experienced 
farmers and deny it to experienced men in other classes on the ground 
that society requires it. Is that your position? 
Mr. Brooks. Yes, sir. 

Mr. Platt. In the case of Ireland, again, the National Government 
has not loaned money to the Irish peasants and farmers, which you 
propose, for the purpose of promoting agriculture, has it? 

Mr. Brooks. It is for the promotion of home ownership, and, indi- 
rectly, that promotes agriculture. 
37031—14 17 



258 RURAL CREDITS. 

Mr. Platt. It was not primarily for agriculture. It might pro- 
mote agriculture, but it was not done for the purpose of promoting 
agriculture; it was for the purpose of taking care of these tenants 
and giving them the land which they considered they should own. 

Mr. Brooks. It was not for sentimental purposes, it was an eco- 
nomical necessity. The people of Ireland were leaving the country. 
There are not half as many people in Ireland to-day as there were 50 
years ago. Ireland used to be an asset; it was liable to become a lia- 
bility rather than an asset, and all the ambitious young people were 
leaving the country, and they adopted this as a means of stopping 
emigration from Ireland. It was for the purpose of making the 
Irish peasant feel like it was worth while to work at home, to bring 
about more patriotism and public spirit. It had all those things in 
view. 

Mr. Platt. I agree with you on that theory. But it was not pri- 
marily for the purpose of promoting agriculture; and I think that 
the same thing is true of the loans in Denmark. 

Mr. Brooks. Yes ; but it promotes agriculture. 

Mr. Platt. The Government loans were not made primarily to 
help agriculture; they were made for other reasons, including those 
you have mentioned in the case of Ireland. 

Mr. Moss. May I ask a question? 

Mr. Bulkley. Certainly. 

Mr. Moss. Dr. Coulter submitted some very interesting figures 
and showed them to me, that there was only 15 per cent of the farm 
laborers who did not ultimately become landowners. If, as a 
matter of fact, 85 per cent of the farm population to-day became 
landowners, is there any great necessity now, in order to promote 
civilization, that these 15 per cent shall be helped directly to home- 
steads as your remarks would indicate? 

Mr. Brooks. I do not know just what process was used to gather 
the statistics proving that only 15 per cent of them failed ultimately 
to become home owners. I know that at present they do not. 

Mr. Moss. In Ireland there is a very large percentage of people 
who could, under no circumstances, become landowners without this 
loan. 

Mr. Brooks. Yes; and the same thing is true in this country. 

Mr. Moss. Not if the doctor's figures are true, and they are taken 
from the United States census figures, that under present condi- 
tions 85 per cent of the population to-day become landowners. If 
that is true, then you would agree with me, would you not, that there 
is no analogy whatever between the conditions in Ireland and those 
in America to-day, so far as farm landowners are concerned? 

Mr. Brooks. That statement does not bear out my own observation 
in the matter, if it shows that all but 15 per cent do become owners. 

Mr. Woods. I think there is a little error in that. Certainly not 
all but 15 per cent of the farm laborers become landowners. 

Mr. Moss. I should have said 15 per cent of the farm tenant-. 

Mr. Skldomridge. What was the statement? 

Mi-. Coui/ter. The statement was that we had now collected statis- 
tics showing that of all farmers, tenants and all. taking all farmers, 
I think, over 50 years of age, only 15 per cent were tenants, while 85 
per cent were owners; while taking the young men it was practically 



EUKAL CREDITS. 259 

the reverse, I think 23 per cent were owners and 77 per cent were 
tenants, showing that they started in as tenants, only a very few 
starting in as owners, and by the time they got over 60 they were, 85 
per cent of them, owners and only a very few of them tenants. 

Mr. Brooks. Is that increase in home ownership over tenantry as 
great now as it used to be? 

Mr. Coulter. We have not any earlier statistics to compare with. 
We simply have them as of the census of 1910, and this is the first 
we have definitely tried to show any relationship between the age of 
the farmer and his status. I would like to say, further, that since I 
was on the witness stand here I made a further comparison of the 
statistics they are compiling, and it shows that the older the age of 
the group of farmers the larger the farm, that the younger the 
farmers the smaller the farms, indicating that the younger farmers 
have the smallest farms and the older farmers have the largest farms. 
That question has been disputed by a number of students, and a com- 
pilation has been made and a report is being prepared on that subject 
down at the office now. 

Mr. Woods. The probability is that these tenants did not become 
farm owners, but the majority moved to towns; therefore, of those 
remaining all but 15 per cent would become farm owners. 

Mr. Coulter. Possibly so; I can not say. But we discussed this 
subject the other day. 

Mr. Woods. The interest rates were so high that it compelled him 
to move to town. 

Mr. Platt. I think there is no doubt that the tendency is that the 
3 7 oung men do start as tenants and become owners. I know that 
is true of farmers I have known. 

Mr. Bulkley. I wanted to pursue a little further the line of 
thought that I started on a few minutes ago. 

Your argument, I understand, is that the Government should help 
the farmers to get land, not because you advocate doing any special 
thing for the farmers, but for the sake of saving society from the 
lack of production of the soil. That is essentially your argument, is 
it not ? 

Mr. Brooks. Yes; and a lack of interest in his country, that he 
can only have when he has a home. 

Mr. Bulkley. Yes. Now, I think that is a very interesting argu- 
ment and I think there is a good deal to it, but I hope it will not get 
confused with something else that is not so. You implied that you 
were asking for legislation that would do for the farmer what was 
already done for commercial classes in the currency bill. As a 
matter of fact you are asking that much more should be done for 
the farmer, not because it is for the farmer, nevertheless you are 
asking that much more should be done for the farmer. Is that not 



so 



Mr. Brooks. Of course, there is not any provision in the other bill 
that does exactly as much for any class as buying the land and sell- 
ing it by the Government to the individual farmer would be. 

Mr. Bulkley. In fact, there is not any analogy in that bill. That 
does not destroy your argument at all. but I just want to clear up 
that situation. There is not an analogy in the currency law such as 
you are suggesting. 



260 EURAL CREDITS. 

Mr. Brooks. The currency law takes the risk of the Government on 
commercial paper, and this would take a risk on the farmer with 
real estate to back him. 

Mr. Seldomridge. What risk does the Government take? 

Mr. Bulkley. Let me see if this is not so. Is it not true that you 
are proposing that the farmer should put up $10 and borrow $90 
from the United States, whereas the currency law provided that the 
regional banks, with double liabilitv. should put on $140 to borrow 
$100? 

Mr. Brooks. The difference is only in degree. 

Mr. Bulkley. Is not the difference in degree so great as to be a 
difference in kind? 

Mr. Brooks. And the purpose is greater. 

Mr. Platt. Does not the currency law provide this, that the United 
States Government shall issue that currency and loan to the banks 
at one-half of 1 per cent and the banks are in turn allowed to turn 
around and loan it out at 6 per cent ? 

Mr. Brooks. That is not exactly its operation. 

Mr. Platt. Is not that the way the currency law reads? 

Mr. Bulkley. That is not the effect of it. and, of course. Mr. Platt 
knows that as well as anybody else. 

Mr. Platt. That is the way it read-. 

Mr. Bulkley. I am going to ask Mr. Brooks one other question, 
whether he thinks that the loaning of currency as provided by the 
Glass-Owen bill, by the Federal-reserve act. is any benefit to the 
bankers; whether the indorsement of the United States is any benefit 
to the bankers? 

Mr. Brooks. Do you mean to ask if I think that it is worth any- 
thing to the bank for the Government to indorse it ? 

Mr. Bulkley. I am asking you whether it is any benefit to them 
to have the United States Government's indorsement on those notes 
which are loaned and which are required to pay interest? 

Mr. Brooks. Where the Government indorses any proposition it 
gives it a moral support, whether it does anything less or not. 

Mr. Bulkley. I think that is true ; but do you think it is any bene- 
fit to the banks? 

Mr. Brooks. If the law was carried out according to its purposes, 
it would not need any indorsement, and for that reason you may 
say it does not do any good : but nevertheless if you get a moral aid 
it is a good. 

Mr. Bulkley. Is it not a fact that the principal bankers of the 
country fought bitterly against having any Government indorsement 
©n it, and said they wanted to issue their own notes without Gov- 
ernment indorsement on them? 

Mr. Brooks. I think it was for a different purpose. 

Mr. Bulkley. But certainly they did. and they figured their notes 
were absolutely good without Government indorsement, and they 
wanted to put them out without Government indorsement. That 
would save the interest which they would otherwise have to pay. 
Is it not a tax on them and a detriment to them to have that indorse- 
ment ? 

Mr. Platt. You could put the tax on them just the same without 
fehe Government's indorsement if you wanted to. 



EUEAL CEEDITS. 261 

Mr. Bulkley. Yes; but that is not the way de did it. 

Mr. Brooks. It was a war between two theories, and one theory 
won, and I think the right one. 

Mr. Bulkley. I remember you made a very excellent statement 
on that when you came before our committee last winter, and to my 
mind it had a good deal of influence with the committee. 

Mr. Brooks. Unless there are other questions, that is all I have to 
say. 

Mr. Bulkley. That is all I have to ask. 

Mr. Brooks. I wish to thank the committee for its kindness. 

The Chairman. We are very glad to have you with us. 

STATEMENT OF T. C. ATKESON, MORGANTOWN, W. VA. 

Senator Hollis. Will you give your full name to the stenog- 
rapher? 

Mr. Atkeson. T. C. Atkeson. 

Senator Hollis. Where do you live ? 

Mr. Atkeson. I live at Morgantown, W. Va. I am a West Vir- 
ginia farmer and master of the State grange, and representative 
here of the national grange, as member of the legislative committee. 
I got notice Saturday to appear before this committee, and I got up 
Sunday morning and did what some people perhaps think I ought 
not to have done, prepared a few remarks to make to this committee, 
and spent Sunday afternoon in that way, and did not go to church ; 
my daughter typed it, and she did not go to church. I might say, 
however, that a good many of the statements in the way of statistics 
and data that I had collected and had contemplated submitting have 
been submitted already by Prof. Brooks, and I shall not repeat them. 

In the first place, the statements I make are on my individual re- 
sponsibility for I am not able to employ high-priced attorneys, as 
some of the representatives of high finance did who appeared before 
the committee when the general banking bill was under considera- 
tion, possibly to suggest what they should saj^, and particularly to 
see that they did not say the wrong thing. So if I happen to say the 
wrong thing I do it on my own responsibility. In my representative 
capacity I shall assume to speak for the organization that I represent. 

I shall read a part of what I have written here, and will try to 
hurry along. 

In presenting the subject of farm credits to this committee I hope 
to do so from the standpoint of the real farmer who is the man with 
primary or first interest in the action Congress takes upon this mat- 
ter. The farmers of this country do not want to be set apart from 
other business men, and if absolute equality before the banking laws 
can be secured by them, they do not ask any subsidy or special priv- 
ilege for the business of farming. Just now they are greatly con- 
cerned that no undesirable or burdensome system be fastened upon 
them, since they know by large experience that it is easier to take on 
burdens than it is to get them taken off. 

So far as I have been able to learn the general banking law enacted 
by this Congress is universally approved by our farmers. And as 
evidence that the farmers are able to understand a financial propo- 
sition, I have only to restate the fact that in November, 1909, the 
national grange was in session in Des Moines. Iowa, when Senator 



262 RURAL CREDITS. 

Aldrich came to that city to deliver an address in support of the 
Aldrich banking scheme. A large banquet was given in his honor 
in the hotel where the national grange had its headquarters. A few 
of us had the privilege of hearing the Senator's eloquent and learned 
address, presented with all the seductive skill of which he is past 
master. About the first thing on assembling the next morning, the 
national grange, by a unanimous vote, adopted this resolution: 

Whereas a project is now being actively promoted to establish a great cen- 
tralized banking institution, and believing this to be a revival of a dangerous 
proposition which once before in our country's history raised its threatening 
beat], but which danger was averted by the veto act of a brave President: 
Therefore be it 

Resolved by the national grange in forty-third annual session ascmbled and 
representing 1,000,000 conservative, liberty-loving people, That we are unalter- 
ably opposed to any legislation by Congress looking to the establishment of a 
great centralized bank. 

Congress did not pass the Aldrich bill, and, for all I know, the 
distinguished Senator went back to Rhode Island and hanged him- 
self. 

As I have already said, the farmers of the country approve the 
general banking law enacted by this Congress. Not because they 
believe it is perfect or wholly just as between the people and the 
bankers, but because they believe it vastly better and fairer to busi- 
ness men generally and the farmers particularly than the law it dis- 
places. We shall know more about its excellence and defects in a few 
years than we do now. 

When the general banking law was under consideration, if we 
were not misinformed by the newspapers, the bankers had a good 
deal to say about the banking bill, and when they failed to get quite 
all they wanted, as usual, they are taking all they can get quite 
cheerfully. 

Coming more directly to the farm-credit proposition, if we are to 
find justifiable excuse for enacting any kind of " farm credit " or 
" farm land bank system,'' we must find some broader and more of 
a general welfare reason than the granting of a special privilege to 
the men who till the soil and feed the Nation. It must be based 
upon the common good, as are our schools, roads, rivers, harbors, 
postal service, and many other laws that come within the province 
of progressive, broad-minded statesmanship. 

For 100 years, more or less, the trend of legislation in this country 
has been toward the building up of the cities through a protective- 
tariff policy, which resulted in the drift of our population toward 
the cities, until the inevitable high cost of living wail is heard from 
one end of the land to the other. 

All the people were taxed to secure a special privilege to the money 
changers, which concentrated the wealth of the country in the cities. 
If that is undesirable (and the history of all former civilizations 
teaches us that it is) then it is about time our national legislators 
look under the surface of things and see what is going on. If we 
are to have farm-credit legislation in this country, it should be based 
upon the common good and not upon a special privilege; and upon 
that proposition I believe the farmers stand with me. And. what is 
more, the farmers are tired of being priest-ridden by those who 
would assume to do their thinking with a salary attached, and espe- 



EUEAL CREDITS. 263 

cially do they believe they are entitled to a hearing upon the subject 
3^011 gentlemen now have under consideration. 

The people who go to Europe to study conditions all seem to be 
able to find what they want. That is a wonderfully prolific country 
over there. The Aldrich Commission went over there and dug up 
the so-called Aldrich scheme. The Rural Credit Commission went 
over and brought back a mass of literature and somebody incubated 
the Fletcher-Moss banking bill. Our people, if you will not put this 
in the record, call it the " Mossbacked Fletcherized monstrosity." I 
hope you will not put that in the record. 

With all the seeking for light on how to make the farmers' assets 
of the country available as security for the money changer, the 
farmer himself has not been consulted; but I want to assure you he 
means to have something to say about it. To presume upon his 
ignorance or helplessness is hardly safe. Confuse the subject as we 
may. there remain three clearly drawn propositions in the public 
mind upon the subject of rural credits. 

First, a new banking scheme known as farm-land banks, con- 
trolled and operated wholly by the capitalistic class without any 
guaranty of reduced interest to the borrower. Second, national farm- 
land banks, cooperative — and don't forget the comma — ; ' national 
farm-land banks", comma, "cooperative"; and, third, Government 
loans direct to farmers on first mortgages. 

We shall pay our respects to the first of these propositions as it 
is embodied in the Moss-Fletcher bill, which in some respects is the 
rankest kind of special privilege granted to the capitalists who con- 
trol these banks. 

For these so-called national farm-land corporations, which are 
private profit-sharing institutions in every sense, this bill exempts 
from taxation — 

their capital stock and surplus therein and the income derived therefrom and 
the mortgages and deeds of trust and notes and bonds secured thereby held 
by said bank and the national land-bank bonds issued by the same. 

This bill repeals the income-tax law in its application to indi- 
viduals who have income from these banking institutions and in its 
application to the income of the corporation itself. It renders 
nugatory the law of States which tax the capital stock of corpora- 
tions. The tax exemption includes the profits of these banks and the 
profits of individuals who make their investments solely for profit 
and who have no regard for the great national policy of conserva- 
tion of agriculture and the perpetuation of our food supply. 

The exemptions are totally without the warrant of a great national 
beneficence. The Nation might be justified in making these exep- 
tions for the good of the whole people, but to make them for the 
benefit of the few bankers is special legislation of the rankest type. 

William Pitt, the great English statesman, was not far wrong 
when he said : 

Let the American people go into their debt-funding schemes and banking 
systems, and from that hour their boasted independence will be a mere phantom. 

There never has been a time in the history of the United States 
when the farmer was treated fairly or equitably in the nature or 
management of the money system of the country. And this pro- 
posed farm-land bank scheme does not make any effort to treat him 



264 RURAL CREDITS. 

fairly. Some so-called statesmen, who know as little about it as the 
man in the moon, have undertaken to say what the farmers ' ; do not 
desire," with the assurance of an over-lord who would underesti- 
mate the average farmer intelligence. All such may rest assured he 
•'does not desire" the kind of farm-land bank provided for in the 
Moss-Fletcher bill for several very vital reasons. 

First. Because, so far as they provide for the special privilege of 
exemption from taxation, it is a special legislation for private 
profits. 

Second. There is no effect to fix the rate of interest below the pre- 
valing rate. The interest is uncertain. 

Third. It gives no guaranty against the devious ways of money 
sharks, who have been responsible for much obstruction to agri- 
culture. 

Fourth. It is folly to trust a private corporation to carry out a 
great. Government policy, and the creation of a private banking 
scheme will never handle their business for an altruistic purpose. 

" The private-bank plan of farm credits is not a thoroughbred." 
I have quoted that from Congressman Bathrick. " It is part public 
policy and part greed. It can be nothing but an abortive attempt 
to hitch altrusm with avarice." For these and many other reasons 
the farmers " do not desire " a farm-land bank system without pro- 
tection against the type of men that Christ scourged from the temple. 

My time is too limited to go any further into this phase of th.e 
subject, but the further you go into it the more you will realize some 
of the things the farmers "do not desire;" any statement of the 
self-appointed overlords to the contrary notwithstanding. 

The second proposition, as stated, is involved in the National 
Farm-Land Bank, Cooperative. Every time I see that title I am re- 
minded of a statement made to me by ex-Gov. Atkinson, of my State, 
now judge of the United States Court of Claims. He is an ardent 
member of the Methodist Episcopal Church, while my membership 
is in the Methodist Episcopal Church. South. The governor told 
me that — 

the difference between our churches was that his church was the Methodist 
Episcopal Church of God, and that mine was the Methodist Episcopal Church, 
South of God. 

That is. it failed to make a very impotent connection. And I am 
afraid the National Farm-Land Bank, Cooperative, lacks the vital 
connection with the people on the farms. 

We have great respect for any honest effort at cooperation among 
the people which may in any way assist them in holding their own 
against the encroachments of the people who control the money of 
the country. The farmers would have more confidence in the pro- 
posed National Farm-Land Bank. Cooperative, if it were not for the 
company it is in and the cooperative part being set off by a comma 
and hung on at the tail as a kind of afterthought. Because of the 
conditions existing in this country, if cooperative banking ever be- 
comes general among the farmers it must come about gradually and 
be a long time in developing. "We believe the greatest possible en- 
couragement should be given to self-help and genuine cooperation, 
but instead of yoking up with a special privilege, private banking 



RURAL CREDITS. 265 

institution, it should be part of a broad, comprehensive, national 
policy administered by the Government itself. 

This brings us to the consideration of our third proposition. As 
an expression of what at least some of the farmers of this country 
desire, we submit the following declarations and resolutions adopted 
by the national grange at Manchester, N. H., last November. That 
was before any of these bills were prepared. These resolutions state : 

The commerce of this Nation is conducted upon a basis of $1 (if cash and $8 
of credit, and the cost of credit is a heavier burden upon agriculture than 
upon any other industry ; and 
Notwithstanding that the products of agriculture bear a more important rela- 
tion to the necessities of the people th-m any other and the success of all 
Commerce awaits the success of agriculture, the burden of the cost of credit 
upon agriculture has handicapped its progress and it has been the victim in- 
stead of the beneficiary of our system of credit; and 
Although the conditions surrounding agriculture are distinctly different from 
those of other countries, it has been compelled to accept terms and cost of 
credit unsuited to its needs, with the result that the highest courage and 
thrift of our farmers has often eventuated in loss of home and pitiful failure 
to thousands of them ; 
Farm tenantry, with its consequent probable depletion of production per acre, 
has increased from 25.6 per cent of all farms in 1880 to 37.1 per cent in the 
year 1910. which reveals a progressive and alarming advance toward land- 
lordism, a condition which every nation on earth has found disruptive of 
peace and productive of internal disorder; 
As the productive acreage in the United States is not keeping pace with the 
mortgage indebtedness or increase in population, as the interest charge must 
be borne by all consumers, farm credits is a national issue. The present 
agricultural conditions are not attractive to our people, as is shown by the 
20 per cent increase in the population of the country as compared with the 
100 per cent increase in the cities in the last 20 years. It is the duty of the 
Government to take care of our food supplies ; 
It should carry out a far-sighted policy to conserve our agriculture. Our Gov- 
ernment has guaranteed railroad bonds, given the railroads 158,000,000 acres 
of land, furnished public funds to banks at 2 per cent interest or with no 
Interest, used Government funds for irrigation schemes and to aid agricul- 
ture in the Philippines. Our Government can not delegate and intrust poli- 
cies to the greed and selfishness of all men. We should profit by the experi- 
ence of the other countries of the world, especially those that are most pro- 
gressive: Therefore be it 

Resolved, That it is the opinion of the national grange that any legislation 
for the purpose of bettering farm credits is a part of the national policy of 
conservation of food supply and as such the Government of the Nation should 
itself carry out this policy and it can not properly be delegated to private 
capital for general exploitation and profit. 

Resolved, That any farm credit association which receives any privileges 
by or under State or Federal law should be composed of farmers and not of 
capitalists of high finance', who have heretofore dominated agricultural credit 
and created conditions which now demand relief. 

Resolved, That any farm-credit plan which does not include a direct reduc- 
tion of the "prevailing rates" of interests, as well as a long term of small 
a.nnual payment upon farm mortgages, will not meet agricultural requirements. 
Resolved, That the Government of the United States should borrow money 
at a rate of interest not to exceed 3$ per cent and lend the money at a rate 
not to exceed 4 1 per cent to the farmers upon long-time farm-land mortgages 
with such restrictions as may be necessary to make the Government perfectly 
secure, and the profit to the Government to be expended in road improvement or 
for some other object that will benefit the whole people. 

These resolutions provide specifically for two things. They were 
unanimously adopted at the session of the national grange of Man- 
chester, N. H., last November. It was before you prepared any of 
these bills. 



266 RURAL CREDITS. 

Senator Hollis. I think I ought to say, Mr. Atkeson, that I made 
a special effort, at the request of the officers of the national grange, 
to get Mr. Moss or Senator Fletcher to come up and explain what 
they had in mind, but their engagements were such that they could 
not do so. Secretary Houston went up and he apparently was not 
received very much more favorably than this bill is. 

Mr. Atkeson. These resolutions provide specifically for two 
things : The direct loan by the Government of money secured upon 
long-time farm mortgages at a fixed rate of interest, and for the 
formation of farm-credit associations under Federal or State control 
to provide short-time loans. 

The national grange did not wait for some overlords to tell them 
what thev " desired," and they believe with Congressman Bathrick 
that— 

The way to carry out •! national policy is for the Nation itself to do it as 
nearly as possible and not turn it over to private interest as much as possible. 

As a foundation for any farm-mortgage loan plan we should have a power 
with stability unquestioned now; not one requiring a generation in which to 
gain a confidence of the people and make a remedy efficient against the evil we 
wish to cure. 

Such a power can establish at once the best possible market for the bonds 
or debentures required to liquefy mortgage security, at once solve the problem 
of tax upon mortgages and debentures, at once institute a low rate of interest 
and decrease the cost to the lowest possible minimum, at once provide an ade- 
quate supply of money at the lowest possible cost, at once place mortgage bonds 
upon a footing with the very best security know in the world, at once begin 
work of relief aimed at all over the country instead of in a few places. 

The power exists and is none other than the Federal Government. This is 
the central authority of the people. It is the apex authority covering all the 
units of cooperative Government. Tf we wish to institute an effective farm- 
credit system, why should we defer wholly to the unrelated efforts of these 
units? Why should we suffer the long waiting for these units to coordinate ou 
this great purpose when the apex authority can do it at once? These various 
units are free to perform this service as they wish, but the Federal Govern- 
ment could at least so act that the waiting for State action shall be a season of 
accomplishment and not one of procrastination, that the country may be cov- 
ered by the policy in a complete instead of a desultory manner. 

To this should be added that if it is not class legislation and 
paternalism to exempt from taxation the stocks, notes, bonds, in- 
come, and surplus of a private bank, who will have the nerve to say 
that Government loans to farmers is class legislation? 

The academic political economist may elaborate his theories of 
government and go on using language about the forms of govern- 
ment, but theories change and fallacies wither and the conflict be- 
tween the right of men and the arrogance of the dollar remains 
with 'is. teaching the folly of trying to serve man and mammon at 
the same time. 

"We have made a careful study of most of the farm-credit bills 
introduced in the House and Senate and we find that the Bathrick 
House bill and the Norris Senate bill most nearly conform to the 
resolutions adopted by the national grange, and which have been 
indorsed by the Farmers' Union and the Federation of Labor. All 
of these organizations believe that the adoption of a farm-land credit 
system along the lines of the Bathrick bill will do much to multiply 
happy homes in the country, which is the greatest possible achieve- 
ment of human government, and is essential to the upbuilding of 



RURAL CREDITS. 267 

the character of a people without which all forms of government 
will ultimately result in failure. 

Mr. Platt. Did you have the Lafferty bill before you when you 
made those observations? That provides for 2 per cent loans. 
Wouldn't that be better? 

Mr. Atkeson. You mean in preparing this paper, or the resolu- 
tions? 

Mr. Platt. When your resolutions were passed? 

Mr. Atkeson. No, sir. The Bathrick bill was not in existence at 
that time, as I understand it. 

Mr. Platt. The Lafferty bill, I spoke of. 

Mr. Atkeson. Oh, I heard Mr. Lafferty 's discussion of the bill 
when I appeared before the subcommittee here in December, I be- 
lieve it was, and I am quite familiar with the provisions of the Laf- 
ferty bill. There are some very important differences between the 
Lafferty bill and the Bathrick bill, whether we favor the one or the 
other. I trust the committee will interpret all I have said as not in- 
dorsing any particular bill as a piece of perfection. I am expecting 
the combined wisdom of the committees of the House and Senate 
will give us a piece of perfection, if we could so name it. 

Summing up, the grange stands for direct Government loans upon 
long-time farm mortgages, with a limit of not more than $15,000 to 
be loaned to any one man, and a farmers' cooperative loan association 
under Federal or State control, surrounded by every possible protec- 
tion against loss by the Government or the cooperative association. 

In conclusion, I desire to place in the record a circular letter sent 
out by the National Grange legislative committee. I will not read it 
without some one desires me to do so. It represents the grange's 
position upon this subject. We have sent them to pretty nearly 
1,000,000 people in this country within the last 10 days: that is. 
through the organization it has reached pretty nearly that many. 
As I understand it, the farmers' unions and the Federation of Labor 
say substantially the same thing- to their membership from one end 
of the country to the other. If there is no objection. I will place 
this in the record. 

(The circular letter referred to is as follows:) 
To the members of State, Pomona, and subordinate Granges: 

Just at this time the most important and urgent subject before Congress, so 
far as the farmers are concerned, is that of " farm credir." Recognizing its 
paramount and immediate importance the National Grange at its last session, 
and many State granges meeting since that time, have given it careful consider- 
ation. Many bills have been introduced in the Senate and House of Represen- 
tatives and many more are likely to be. 

Your legislative committee, after careful consideration of the "farm credit" 
bills pending in Congress, find that the bill which most nearly conforms to the 
resolutions adopted by the National Grange, is the Bathrick bill (H. R. 11897), 
and have unanimously agreed to support that bill. 

The bill provides that the Government shall borrow money at a rate of inter- 
est not in excess of 3£ per cent and lend on farm first mortgages at a rate not 
in excess of 4A per cent. 

The mortgage contracts are payable in small annual installments. The 
debtor, however, can pay all or any part of the mortgage at any interest-paying 
period. 

Loans can be made direct to farmers or to farmers through farmer's farm- 
credit associations. The rapid organization of these self-help associations will 
be encouraged by employing and paying them to attend to the work of appraising 



268 RURAL CREDITS. 

and Inspecting mortgage loans, leaving their capital free to care for local short- 
time loans. This program is in conformity with the best European experience, 
whore self-help and Government aid go hand in hand. 

Limitations and restrictions on loans will encourage the ownership of farm 
homes, but discourage unwholesome land speculation and tenantry. The cost 
of Investigation, appraisal, and inspection in making a loan will be confined to 
actual expenses. The bonds issued to secure the loan fund will be in small, as 
well as large, denominations and their total will at no time exceed the amount 
of mortgages held to secure them. The money borrowed must be used for the 
discharge of obligations, purchase price, or the improvement of the property 
offered as security. The applicant must be thrifty and of good character and no 
loans shall exceed 60 per cent of the value of the farm. All applications must 
be sworn to and a heavy penalty is provided for misrepresentation. 

Postmasters and other Government officials will be employed to assist in ad- 
ministering its provisions. Without detailing the administrative features, it 
can he said that they seem well designed to carry out the provisions of the bill. 
Profits, if any, are to be expended in building and maintenance of good roads. 

This bill comprehends the best plan of bettering the conditions of both long- 
time mortgage and short-time loans and is devoid of any taint of private profit. 
By it, those now struggling with a hopeless mortgage would be shown a way 
out. Those out of debt would be awakened to the advantage of a safe credit 
and those who wish to own a home on the farm would be given substantial 
opportunities. All this can be done expeditiously by Government loans, but by 
private banks or by any unaided self-help plan the benefits will drag slowly 
through a generation. 

All the leading nations of the earth are doing as much as is intended by this 
bill. England and Germany lead in Government and State aid. The bill does 
not express a new proposition. It is not even new to the United States. Loans 
to banks, gifts and guarantees to railroads, loans to Philippine farmers, irriga- 
tion appropriation, and many laws give color of practice to it. 

There is no chance of loss to the Government but, rather, a sure chance of 
gain for all the people. This seems preferable to a new system of private mort- 
gage banks gathering profit for a few. 

If this bill is class legislation, so is it class legislation to lend money to the 
banks. The success of agriculture is as important to the whole people as the 
banks. 

Government bonds issued for this purpose could not invade the public purse 
or the taxing power. Hence could not affect the Government credit, or cost the 
people a penny. Nine of our States now lend their school funds to farmers and 
lose nothing. 

The Bathrick bill at once removes the obstacle of taxation on mortgages and 
the debentures: a vitally necessary thing to do before interest rates on farms 
can be reduced. This is done in the interest of food producers and consumers 
and therefore is for all the people. It is for all and not for a few. 

Some bills attempt to cover this phase by exempting private profit-seeking 
banks from taxation. These are distinctly class measures without the slightest 
warrant of Government beneficence for their special privileges. 

Of this class are the Moss bill in the House and the Fletcher bill in the Sen- 
ate. These are distinctly private profit-sharing measures which, in our opinion, 
will do little to aid farm credit, but will build up a new class of national banks, 
interfering with the operation of the new banking and currency bill, and 
strengthen the hold of the money power upon the people. These bills are in 
utter opposition to the resolutions passed at the last National Grange meeting. 

They leave the important question of interest rates uncertain and delegate the 
great national policy of conservation of agriculture to individuals, who can be 
actuated only by a desire to make as much money as possible out of the operation. 

If it is constitutional to give exemption from taxation to the stock, surplus 
profits, bonds, notes, and other securities of these individuals and thereby add 
to their profits, who will raise a question of the right of the people's Govern- 
ment to lend money on farm securities free from taxation? 

Fraternally submitted. 

Oliver Wilson, 
T. C. Atkeson, 
H. J. Patterson, 
Legislative Committee of the National Grange. 



RURAL CREDITS. 269 

Mr. Platt. When were those resolutions published ? 

Mr. Atkeson. About the middle of November. I do not remem- 
ber the date. It was during the session of the grange at Manchester, 
N. H., about the middle of the month. 

Now, I had expected the master of the national grange to be here — 
Mr. Patterson, the president of the National Agricultural College—- 
and also Mr. Wilson. Since Mr. Wilson is not here, I want to place 
in the record a little reprint from his annual address to the national 
grange at Manchester. I do not believe he had read any of these 
bills when he wrote this brief statement. He says : 

I believe that the time has come when the national grange should be heard 
upon this very important question. 

There did not any of them go to Europe that I know of. 

It is not my desire, even if I had the authority, to outline an exact policy 
for the grange to follow. I desire to submit a few thoughts, suggestions, and 
conclusions which I have arrived at, so as to bring the question in tangible 
form up for consideration, realizing that your honest, calm, and conservative 
deliberations will fairly establish the truth and will be the means of our going 
before the world as a united body, standing for justice and equality for all 
classes. 

I believe : 

First. Any rural credit system should make it easy and safe for a farmer to 
borrow money to buy or improve his land or equipment to operate same. 

Second. Long-time credit at the lowest possible interest for the farmer who 
desires it. 

Third. A rural credit system that is suited to the needs of the peasant condi- 
tions existing in many parts of Europe must necessarily fail in our free, inde- 
pendent United States. 

Fourth. The so-called rural credit commission that went to Europe had but 
very few real representatives of agriculture; consequently we can expect but 
little, if any, benefit from its report. 

Fifth. Any credit system to be safe for the people must be either directly 
controlled or operated by the Government. 

Sixth. Any system under private control, operated as a special privilege, 
would ultimately prove a detriment to agriculture. 

Now, I realize that this statement has left unsaid a great many 
things that might have been said. It is almost an endless subject. 
Possibly it has said many things that might have better been left 
unsaid. But this is a free country, and we have been frank and 
good-natured in what we have said, and there has been but one 
thought in all I have said — one paramount thought ; one central 
thought — that is. that the people who inhabit the farms of this 
country are not asleep. They said these thing that I quote from 
them last November. They said things as far back as 1909 in the 
action taken after listening to Mr. Aldrich's speech at Des Moines. 
I have been saying things in the national grange practically every 
session since, and because the farmers of the country are at home 
trying to feed the Nation, and are not spending much time at Con- 
gress or before committees, it does not justify the conclusion that 
the farmers are not vitally interested in this question. And, as I 
talk to them personally, they seem to be possessed with one fear more 
than any hope. That is the fear that some kind of a job will be put 
up on them that it will take them a generation or two to get rid of. 
They fear more the ills that may come than the ills they have — 
many of them. 

So we feel that they are entitled to be heard and to be given every 
consideration. 



270 RUKAL CREDITS. 

Mi. Stone. Have they been denied a hearing? 

Mr. Atkeson. Not at all. 

Mr. Stone. Has not this committee requested representatives of 
all of the farmers' organizations to appear before it? 

Mr. Atkeson. Yes. sir. 

Mr. Stone. Has not it called upon the different agricultural 
schools to send representatives? Is not this committee, in every way, 
undertaking to be fair by giving to the farmers the best opportunity 
to be heard? 

Mr. Atkeson. We have not intimated that it was otherwise. I was 
accounting for their not being here. 

Mr. Stoke. Your remarks would tend to convey the impression 
that some job was likely to be put up on them; but just because they 
are not here presenting their case is no reason for concluding that 
they are not protected. 

Mr. Atkeson. That is right. 

Mr. Stone. And they are here presenting their case. 

Mr. Platt. By how much of a majority were those resolutions 
adopted? 

Mr. Atkeson. They were adopted unanimously. There were 32 of 
the States represented. 

Mr. Platt. Did all of the New England representatives vote for it? 

Mr. Atkeson. Yes; all of the New England representatives voted 
for it. There was not a single vote against it. 

Mr. Seldomridge. Did New York? 

Mr. Atkeson. New York and every State north of the Mason and 
Dixon line, and Virginia. Kentucky, and Missouri, west to the Pacific. 
We do not have much strength in the cotton States, but the repre- 
sentatives of the Farmers' Union have special strength in those 
States; and so far as I have been able to interpret their acts, they 
are in perfect harmony with our position. 

Mr. Platt. Who appeared before the national grange in advocacy 
of any particular plan at that meeting? 

Mr. Atkeson. Of this proposition? 

Mr. Platt. Yes. 

Mr. Atkeson. I will say this, that the committee that had that 
matter under consideration was a committee known as the legislative 
committee. At that particular session I happened to be chairman 
of that committee. Mr. Stetson, of Maine, and Mr. Sherwood, master 
of the Rhode Island State grange : Mr. Stetson, master of the Maine 
State grange: Mr. Sherwood, master of the Rhode Island State 
grange: and myself, master of the West Virginia State grange, were 
the three men who were members of that committee. There were 
also three ladles. I do not remember who the ladies were. One of 
them was the wife of the master of the New Jersey State grange. 

Mr. Platt. Did any outsider appear before the national grange in 
advocacv of any particular legislation? 

Mr. Atkix n. Not any outsider. Mr. Bathrick was up there. 
Senator Bristow and Senator Poindexter were both invited to come 
there. They were invited but could not come, and they had no con- 
nection with these resolutions, and the resolutions were written be- 
fore Mr. Bathrick reached Manchester. So there was no advocacy 
in support of these resolutions outside of the grange itself. The 
report of the committee on the resolution was unanimous. There 



RURAL CREDITS. 271 

were in Manchester, as nearly as we could arrive at the facts, some- 
think like 10,000 or 12,000 farmers — some from Washington, Oregon, 
and New England. There was pretty near every one in New Eng- 
land there. Nowhere was there expressed, either in the vote of the 
membership or about the hotel lobbies or anywhere else, anything 
but unanimous approval of the position taken by the national 
grange. 

Now, the national grange did not provide specifically for the carry- 
ing of those principles into operation. The farmers are not skilled 
in the preparation of bills; they are not lawyers; they are not 
bankers, but I will venture to say, however, they would get together 
a bill after a fashion if they were asked to write it. But, assuming 
our Congressmen are capable and patriotic and with the common 
good at heart, they desired only to impress upon them their senti- 
ments as to the general policy. There are three general propositions, 
as I stated in the paper, and they are concerned about the proposi- 
tions more than the detail of the proposition. One is a profit-earn- 
ing banking corporation ; the other is purely cooperative, and Ave are 
all agreed that cooperative self-help, self-initiative, is a good thing. 
I think all of us, no difference what position we take on this general 
proposition, agree that cooperation is a good thing. I do not think 
there is any question about that, if it will operate. There may be 
differences of opinion about that. 

Our conviction is that a cooperative banking association, or what- 
ever you choose to call it, should take care of the short-time loans, 
and that the Government itself should take care of the long-time 
loans, and that the time should be sufficiently long not to weight 
down with the annual or semiannual payments the industry of agri- 
culture beyond the burdens that it can bear. 

There was a question raised this morning as to the length of time 
that this amortization feature should run. Under the commission's 
bill if they can load on to the landowner the whole amount of the 
principal covering a period of six years — if it is for more than five 
years they can distribute the principal over the number of years ; we 
will say it is six — that swamps the man unquestionably. There is 
not a farmer in this country, barring some special conditions and 
some special men, possibly (there are exceptions to practically all 
rules), that can borrow half the value of his land and load it on to 
him plus the interest and the cost of administration and pay it in 
six years. 

The question is, how long shall it run to enable him to meet these 
annual charges? As I have studied the commission's bill — I like to 
call it that— it seems to me that the probabilities (and I waked 
up last night and this thing would keep coming up like Bancho's 
ghost ; it would not down) are that the interest rates will not be less 
than 6 per cent. 

Mr. Platt. Right there, Mr. Atkeson, the farmers in four or five 
States of the Union are paying less than 6 per cent now on their 
mortgages, as shown by the Department of Agriculture. How do 
those banks get along in those States? 

Mr. Atkeson. You mean the legal rate of interest? 

Mr. Platt. No; I mean they are actually paying less than 6 per 
cent in Pennsylvania, New York, and nearly all of the New England 
States to-day, and Ohio. 



272 RURAL CREDITS. 

Mr. Atkeson. There may be a few exceptions, as I said awhile 
ago. We will say, then, it has been figured up that the average rate 
paid by farmers now is 8 per cent — 8 and a fraction — you have all 
seen those figures. Under this scheme the interest rate on the 
average — there may be some Eastern States where the prevailing 
rate will be 6 per cent; in my State the legal rate is 6 per cent, and 
that may be the legal rate in a majority of the States — we will assume, 
under this banking scheme, will be 6 per cent. The cost of admin- 
istration adds another 1 per cent, and then when you add a half per 
cent or a whole per cent, or 2 or 3 per cent for the length of time the 
mortgage runs, covering the amortization charges, you fix an annual 
payment certainly not under 8 per cent. And 8 per cent loads up 
any agricultural enterprise in this country until it is absolutely 
hopeless. 

Now, I want to impress upon you this one thought, because it is 
abhorrent to the farmers — any question of special privilege. The 
question has been raised why this privilege should not be granted to 
the man who wants to establish a home in the city. The cases are 
not at all parallel. If you grant this privilege, and place the interest 
rate with the amortization feature for a long time to run, not above 
4 or 4£ per cent — a good deal has been said about trying to induce 
some of the congested population of the cities to go back to the 
country — would you interfere with Mr. City Blacksmith or Mr. City 
Laborer, or anyone else, availing himself of this privilege, if you 
choose to call it a special privilege ? 

Mr. Bulkley. Mr. Atkeson, in that connection: Do you subscribe 
to what Mr. Brooks said, that the loan should be confined to prac- 
tical farmers with four years' experience? 

Mr. Atkeson. That would be desirable; but I do not believe I 
would undertake to limit it to a farmer of experience. 

Mr. Bulkley. Of course, if you made that limitation, that would 
answer your question. 

Mr. Atkeson. Yes. I would not do it for this reason: It leaves 
a question of dispute as to what constitutes a sufficient experience. 
If a man who is running a blacksmith shop thinks it is one perpetual 
sweet song out in the country and wants to try it, the way to get that 
notion out of his head is to let him try it for a while. I have been 
there. If he chooses to go out in the country, to take advantage of 
this so-called special privilege, he has a chance to go out and try it. 
If he fails to make a living and meet those charges of interest and 
amortization, all he has to do is to sell out to somebody else who 
can meet those charges, and who will go on with the same property. 

Xow, there is one important thing: If I were undertaking to deal 
with the commission's bill, there are several important amendments. 
Some of them were pointed out this morning. But I want to call 
your attention to this one, and that is the limitation on the amount 
any one man may secure. It ought to be limited, otherwise instead 
of helping the independent landowner, who is to live on it and farm 
it, you make it even more possible for the speculator who invests in 
the land with the hope of reward in what Mr. George would call the 
unearned increment. Suppose we take the provision in this bill, 
that he may borrow 50 per cent of the value of his land. If I had 
$100,000 I "could borrow another $100,000 and buy $200,000 worth 



EUKAL CREDITS. 273 

of land and keep everybody else off of it except an irresponsible 
tenantry. 

Mr. Bulkley. Your suggestion is that the total amount any one 
man should be permitted to borrow should be limited to a specific 
sum. Is that right? 

Mr. Atkeson. My own theory is not more than $10,000. But that 
is a matter of detail. 

Mr. Bulkley. In any event, there should be some limit. 

Mr. Atkeson. There should be some limit. 

Mr. Bulkley. I think you are right about that. Now, how did 
you arrive at $10,000 ? 

Mr. Atkeson. My own conviction is it ought not to be more than 
$10,000. and that would make it possible for a man to acquire a 
$20,000 farm. 

Mr. Bulkley. Why $20,000? How do you fix it at that amount? 

Mr. Atkeson. I say that is a matter of detail, a matter of judg- 
ment, as to where it ought to be ; but $20,000 is a pretty good farm for 
one man and one family to operate. If one man owns a farm and 
another man operates it, that land is expected to support two fami- 
lies — one struggling for existence, doing all of the work, and the 
other existing, doing none of the work. 

Mr. Bulkley. Is it your idea that a $20,000 farm is about what 
one family can take care of properly? 

Mr. Atkeson. The dollars and acres do not always fit each other. 
It seems to me that 160 acres ought to be the maximum acreage of 
tillage. 

Mr. Bulkley. Acreage does not exactly fit either. It takes more 
acreage in one part of the country than in another? 

Mr. Atkeson. I understand. That is why I say that any limita- 
tion would be purely arbitrary and would be a matter of the best 
judgment. But it seems to me there ought to be an absolute limita- 
tion put upon any of these schemes as to the amount. Under any one 
of these schemes there ought to be a limitation on the amount that 
any one individual could secure. 

Now, under a direct-loan scheme, it would be easy. There would 
be some complications under a general banking scheme as proposed. 

Now. I have occupied perhaps all the time I ought to, and, good 
naturedly, I shall do my best to answer any questions anyone may 
wish to ask. 

Mr. Stone. Can you give the reasons why farm mortgages are not 
considered the best security now, and why farmers, for that reason, 
can not get money at as low a rate of interest as other persons ? 

Mr. Atkeson. That is a little questionable. It is a remarkable 
fact that it is a fact that farmers have had to pay more for the money 
they borrowed than other people. That is the statistics, and the best 
information I have gained from any source supports that position. 
Undoubtedly it seems to me farm mortgages are the best possible 
security that anyone can offer. Now, why it should pay a higher 
rate of interest than commercial paper demands is a question perhaps 
some statesman or banker can answer. I am sure I can not. 

Mr. Bulkley. Mr. Atkeson, without expressing any opinion one 
way or the other, I will call your attention to the fact that some peo- 

37031—14 18 



274 RURAL CREDITS. 

pie think it would not be constitutional for the Federal Government 
to make direct loans to farmers. 

Now. if the committee should be persuaded that that is the case, 
what shall we do? Shall we do something similar to what Mr. 
Scudder suggested this morning? 

Mr. Atkeson. Yes; if that is the best that can be done; perhaps 
that would be some amelioration of the situation. 

Mr. Bulkley. Would you advocate going any further than that? 
Would you advocate the Government depositing funds with the agri- 
cultural banks? 

Mr. Atkeson. The Government how? 

Mr. Bulkley. Depositing funds with the agricultural banks ? 

Mr. Atkeson. What is to become of those funds ? 

Mr. Bulkley. To be loaned on mortgages? 

Mr. Atkeson. That is a suggested compromise among some of us 
who do not agree, that the Government deposit money in these banks, 
holding the banks responsible, and that the Government fix the rate 
of interest. 

Mr. Bulkley. What do you say about that plan ? 

Mr. Atkeson. Well, if that can be considered to be constitutional 
and the other not, why, that perhaps is a desirable compromise. 

Mr. Bulkley. I think it is conceivable that that might be so. I 
have not gotten to the bottom of the constitutional argument yet. 

Mr. Atkeson. I am a little curious, though — if I may ask you a 
question back — to know on what theory it would be unconstitutional, 
when the Federal Government is already loaning its credit and loan- 
ing its money directly to the banking corporation. 

Mr. Bulkley. The Government has not made any loans to the 
banking corporations. The Government has deposited its current 
funds, the same as you and I might deposit our current funds in the 
bank, for the Government's convenience, as much as your deposit 
with your bank is for your convenience. You are not doing it for the 
benefit of the bank. 

Mr. Atkeson. Then, you consider it is not loaning the bank money 
when the postal funds of the postal savings bank are loaned to banks 
at 2i per cent ? 

Mr. Bulkley. I think that comes pretty near loaning it to them. 

Senator Hollis. That is an investment. 

Mr. Bulkley. It is an investment of money the Government has 
to take care of and is done for the conservation of the funds which 
the Government has, and not for the benefit of the bank. 

Mr. Atkeson. And what would be the difference if they loaned 
that same money on first mortgage bonds? 

Mr. Butlkley. Would you be satisfied if the Government loaned 
the postal-savings funds and no more? 

Mr. Atkeson. I do not see anything constitutionally the matter 
with it. 

Mr. Bulkley. I say would that satisfy the demands of your or- 
ganization, if the Government should loan what happens to be in 
the postal-savings fund? 

Mr. Atkeson. Yes: if it goes a little further. I did not state 
another resolution they adopted at that time, and that was that all 
limitations be taken off deposits in postal savings and that the de- 
positor be given 3 or 3^ per cent and then loan direct to the farmers 
at 4 or 4-|. This county would be astounded at the amount of 



KUEAL CREDITS. 275 

money that would pour into the postal-savings banks in this country. 
You could pretty nearly buy all of the farms in a few years with it. 

Mr. Bulkley. That would be satisfactory, would it? 

Mr. Atkeson. We would take a gamble on it. Remove all re- 
strictions and give the depositors 3| per cent on their money in the 
savings banks, and loan to the farmer at 4i, and give the Govern- 
ment the 1 per cent for administration, and if we don't favor it I am 
going to surrender on the whole proposition. 

Mr. Bulkley. Coming back to the provisions of the Moss bill, 
do you believe that the farmers in local communities would want to 
subscribe to the stock of these banks? 

Mr. Atkeson. I do not think so. 

Mr. Bulkley. You do not think they would at all ? 

Mr. Atkeson. No; I would not say at all; because in certain 
localities, under certain conditions, it might be a successful scheme. 
Whether it would operate generally or not is very questionable. 

Mr. Platt. Mr. Atkeson, you objected to the exemption from taxa- 
tion in the Moss bill of the mortgages and bonds. Suppose the 
Government should loan directly, would not the Government bonds 
be exempted from taxation and also the mortgages they took? 

Mr. Atkeson. Undoubtedly. That is, if you support the general 
proposition, and not for the benefit of a corporation, if the Govern- 
ment put it on with one hand and took it off with another it would 
amount to the same thing; but exempting a private corporation, 
which is a money-making scheme with all of the human elements to 
deal with, why it should be exempt from taxation is quite hard to 
demonstrate. 

Mr. Platt. If bonds and mortgages were not exempted from taxa- 
tion under the Moss bill would not the tax simply be added to what 
the farmer would have to pay? 

Mr. Atkeson. We object to it on the broad ground that it repeals 
the income tax proposition, which we have favored for 40 years — I 
mean the grange. 

Mr. Platt. You believe farm mortgages ought to be exempted 
from taxation, anyhow? 

Mr. Atkeson. Any mortgages or income from private banking 
corporations I do not think ought to be exempted from taxation. 

Mr. Platt. Where mortgages are taxed at the local tax rates does 
the farmer pay the tax, or the borrower pay the tax, or who does 
pay it? 

Mr. Atkeson. That applies to all evidences of debt — notes and 
mortgages. 

Mr. Platt. Yes. 

Mr. Atkeson. I am a money lender, we will say. This bill takes 
the money out of my pocket — I mean the mortgage proposition takes 
the money out of my pocket — and I will manage somehow or other 
to load the tax onto the other fellow. If any of you are money lend- 
ers, I guarantee you do, too. 

Mr. Platt. In other words, if those mortgages and bonds were not 
exempted in the Moss bill, the farmer would pay the tax? 

Mr. Atkeson. If they were taxed, the farmer would pay the tax, 
unquestionably. 

Mr. Platt. Then it is not for the benefit of the corporations; it is 
for the benefit of the borrowers? 



276 RURAL CREDITS. 

Mr. Atkeson. That may be true of the whole income-tax proposi- 
tion. The fellow at the bottom, the man of last resort, is the man 
that bears the burden. 

I believe the consumer pays the tariff, and always did, and I pre- 
sume at least a part of this committee believes that yet Part of them 
may not. It is practical^ impossible to eliminate that element. The 
ultimate consumer pays all the charges. And if you remove the in- 
come tax, you would remove the tax from the people higher up, and 
then you get down to the Henry George theory of putting all the tax 
on the ground upon which we all stand. 

Mr. Moss. May I ask you a question, Mr. Atkeson? 
Mr. Atkeson. Certainly. 

Mr. Moss. The provision exempting this income on capital stock, 
etc., was taken out of the Federal reserve act. The regional banks 
have also their income on capital stock exempted from taxation. I 
believe you stated you approved that act? 
Mr. Atkeson. How is that? 

Mr. Moss. I understood you to say you approved the Federal 
reserve act? 

Mr. Atkeson. You mean the general banking act? 
Mr. Moss. Yes, sir. 
Mr. Atkeson. Yes, sir. 

Mr. Moss. I say this provision exempting incomes on capital stock, 
etc., was taken word for word from that act. 

Mr. Atkeson. Do they exempt farm mortgages? 
Mr. Moss. No; I am speaking about the exemption of the income 
on the capital stock of those banks from taxation being taken word 
for word from the Federal reserve act. and the fact that the regional 
banks under the Federal reserve act are exempted precisely to the 
same degree that the farm banks are. 

Mr. Atkeson. You remember I said in our universal approval of 
the general banking act we did so not because it was perfectly 
equitable. 

Mr. Bulkley. Of course. Mr. Moss, there is another consideration 
there — the dividends. Their dividends are limited. 
Mr. Moss. Oh, yes. 

I want to say one thing. I fully agree with Mr. Atkeson : I am 
not in favor of exempting incomes. 

Senator Hollis. Mr. Atkeson, I want to get a little information, 
and I am asking these questions for no other reason. At Man- 
chester, N. H.. did you find among the members of the grange gener- 
ally a pretty strong suspicion that Congress was not going to try to 
pass an act that would be of real benefit to the farmers ? 

Mr. Atkeson. I did not. There was no suspicion that Congress 
had any such purpose. 
Senator Hollis. That is what I want to get at. 
Mi-. Atkeson. I want to say this frankly, Senator. I believe the 
farmer people of this country believe that this committee, this Con- 
gress, and this administration want to do something that is sub- 
stantially worth while for the agricultural interests of this country. 
Senator Hollis. T am very glad to know that, because I thought 
from some remarks you made you felt they Avere not really going to 
try to help you. but were going: to try to favor some special inter- 
ests ? 



RURAL CREDITS. 277 

Mr. Atkeson. No; they are not suspicious of the body of the 
Congress, and the intent of the Congress and the Senate and the 
House, or these committees. But we think we know, from genera- 
tions of experience, that the man with money is always on the job. 
There are two classes in this country that never quit, and that is the 
fellow who is behind the saloon and the fellow who is behind the 
dollar. They stay up at nights. 

Senator Hollis. Was the fear that the money lenders, the bank- 
ing interests, might hoodwink the committee? 

Mr. Atkeson. Now, Mr. Chairman, just as we realized in the fight 
for a parcel post, there was a great cooperative interest behind it. 
That does not mean any reflection on the Congress. If I were a 
Member of Congress, I would be confronted with this same propo- 
sition. Take the investigations of the Money Trust and the Mul- 
hall investigation: we people read the newspapers more than you 
think. I think there has never been a time in the history of the 
country when the country felt more implicit in the honesty of pur- 
pose of the men in Congress than they do to-day. 

Senator Hollis. I am very glad to hear you say that. 

Mr. Atkeson. But it means the other fellow, that knows the in- 
sidious use of the accumulated millions of this country, is on the job, 
and he is not going to quit until he is compelled to quit. 

Mr. Seldomridge. Mr. Atkeson. did you state the farmers were 
without representation on the commission that went abroad? 

Mr. Atkeson. Not wholly. It was not my statement, it was Mr. 
Wilson's statement in the reprint I read from the paper. We know, 
however, that so far as the bona fide farmer is concerned — the man 
whose primary and substantial support comes from the farm — they 
had very little representation on the commission. Perhaps the 
farmers were themselves to blame for it, but it is the fact. 

Mr. Seldomridge. What commission do you refer to? 

Mr. Atkeson. I take the thing in its aggregate, or take the con- 
gressional part of it. or take the general commission of the South- 
ern Commercial Congress. 

Mr. Seldomridge. In other words, you think the commission was 
really not familiar with the desires and was not representative of the 
farmers? 

Mr. Atkeson. Not in its entirety. As a commission, I do not think 
anything about: I know that I know, if you will excuse that ex- 
pression. 

Mr. Seldomridge. Have you analyzed its report? 

Mr. Atkeson. I sat up with it night after night. 

Mr. Seldomridge. In what essential purpose is the report antago- 
nistic to the idea 

Mr. Atkeson. We did not say it was antagonistic. 

Mr. Seldomridge. You said it was not representative of the agri- 
cultural interests? 

Mr. Atkeson. The men as individuals, in their personality, 
although they may be of the highest order of American statesman- 
ship, and I think 'they are — I am willing to concede that — they can 
not possibly appreciate the purport of those things as the man who 
must meet the conditions of the farm, who eats and sleeps and sweats 
in the open country. It is an impossibility; just as much as it is for 
me to appreciate how somebody in Wall Street or Fifth Avenue in 



278 RURAL CREDITS. 

New York lives and spends his time. I have absolutely no concep- 
tion of how a man representing a million or a billion of money gets 
away with his income; I would not know how to get away with a 
million. And he knows just as little, possibly a good deal less, about 
how 1 have to scrape ends and sit up early and late on an average 
gross income, according to the latest statistics, of less than $900 for 
the average farmer in America. Out of that average income he has 
to support a family of 9 or 10 children and all of the dogs incident 
to the family; he must pay all his hired labor, buy all his machinery, 
and include the incidents of the production of his crop on an average 
gross income of about $900 a year. 

Mr. Stone. Are you actively engaged in farming? 

Mr. Atkeson. Yes, sir; and have been for 62 years last Sunday 
week. 

Mr. Stone. That is your sole occupation? 

Mr. Atkeson. It has been excepting during the last 17 years. I 
have been dean of the college of agriculture in my State. Nine 
months in the year I live in a little town and the other three months 
I am on the farm. And, in association with my son, during those 1 7 
years I have been continuously farming a farm I own. 

I do not like to go into personal history, but I think the committee 
will excuse me for making this statement as an evidence that I know 
what I am talking about when it comes to farm property: When I 
was married I had more good intentions than any man in the United 
States Senate or Congress, and that was my capital stock — the good 
intentions and the woman. I w T orked as a farm hand in West Vir- 
ginia for five years, with a young wife on my hands, and, incidentally, 
some babies in the meantime, at a munificent salary of 75 cents a day. 
At the end of that five years I rented a farm and paid cash rent for it, 
and at the end of 10 years I bought a farm and paid taxes for a good 
many years on about $15,000 of my debts. 

And so I have been up against the varied sides of this farm propo- 
sition. 

I have two sons, both of them graduates of an agricultural college. 
One of them, up until the last 3 r ear, has been on a 500-acre farm in 
the southwest corner of Alabama. So we know the negro and the cot- 
ton proposition down there. Just now he is a farm demonstrator in 
Alabama. Both of the boys are graduates of an agricultural college 
and know how to farm, and they are doing what I tried to teach them. 

I had expected somebody to ask me what I did in the first two 
years. 

Mr. Alexander. You wore in the dairy business the first two 
years? 

Mr. Atkeson. That is right. 

Mr. Stone. You say, Mr. Atkeson, in concluding this statement, 
that j^ou sent out to the grange that " prompt action is imperatively 
demanded if any substantial benefit is to be secured to the farmers by 
the pending farm-credit legislation." What was the situation that 
made it appear to you that such a sentence was necessary 1 

Mr. Atkeson. Well, there are two or three reasons why that state- 
ment was made. In the fifr-t place, the farmers can not come here. 
We assume, and I think it is a fair assumption, that the Members of 
Congress like to hear from their constituents and like to know what 
their constituents are thinking about and their position on the spe- 



RURAL CREDITS. 279 

cial interests and contentions at a particular time; and so that is an 
invitation to the members of the grange to let their Members in 
Congress know where they stand. You will notice there is no sug- 
gestion as to the character of letter they shall write. 
Mr. Stoke. Merely indorsing H. R. 11897? 
Mr. Atkeson. That is all. 

Mr. Platt. Mr. Atkeson, I suppose from what Mr. Stone asked 
you he meant to bring out whether you thought conditions in agri- 
culture are not worse now then they were, for instance, when you 
grew up through the stages of earning a salary as a farm hand, then 
as a renter, and then as a purchaser. Do you mean to say that it is 
harder now than when you did it ? 
Mr. Atkeson. A great deal harder. 
Mr. Platt. Why? 

Mr. Atkeson. His land has been depleted in productiveness, on 
the average, the country over. Through speculative influences, land 
has increased far beyond its productive value at the present prices. 
There was a time when a man could secure land by going through 
the process of settling on it and getting it as a free gift from the Gov- 
ernment; and as time goes on land in Illinois — to give you an illus- 
tration of what I mean— settled two generations ago, acquired for 
$1.25 or no money consideration under the Government alienation 
of the public land, if the men stayed on the land — if they stayed there, 
it does not make any difference how difficult it was to stay there, if 
he could live and get enough to eat and stay there for two or three 
generations — that land has become under his feet worth about $200 
to $250 an acre. 

Mr. Platt. Yes; but that was not what you did? 
Mr. Atkeson. No ; that was not what I did ; but I tackled this 
proposition nearly 10 years ago. That thing has not happened that 
way. I will say this, that I have been offered for the property I 
bought — that I began with just about 40 years ago; not quite that — 
125 per cent more than I paid for it. And it is less productive now 
than it was then, because I taxed it pretty heavily in trying to pay 
for it. And there you are now with an increased valuation of a 125 
per cent increase. And in some cases it has been 1,000 per cent. And 
a man who tackles that job under present conditions — I know now, 
with my experience of 62 years, I would be a fool to tackle now what 
I tackled then. 

Mr. Platt. Now, if you in the country think land has gone down 
because everybody has gone to the cities, what has been the cause 
of that tremendous increase in the value of farm lands? 

Mr. Atkeson. Speculation. I would like to answer that question, 
which has been asked by the farm people themselves, by saying it 
somebody will tell me who is buying the coal lands in West Virginia 
that will probably not pay a cent of income for probably 100 years, 
then I will answer the other question. 

Mr. Platt. Is not the increased value of the farm lands to be 
taken into consideration as an increased compensation for his labor? 
Mr. Atkeson. No. 

Mr. Platt. You have doubled your money on your land. 
Mr. Atkeson. If he undertakes to pay interest on the mortgage, 
it is not a question of waiting for the unearned increment, but it is 



280 RURAL CREDITS. 

a question of paying the debt due in this year, that he must be able 
to carry the obligation or it swamps him. 

Mr. Pi.att. If he does carry it than the increased value of the 
land is increased compensation for his work? 

Mr. Atkeson. That is, if he can hold on. This 125 per cent that 
has come to the land I struggled through with. I possess now. But 
suppose I had been swamped with the debt, paying taxes on thou- 
sands of dollars, and the other taxes. We had all these taxes. We 
always holloed, as I say, a little about that; but we had it to do 
just the same. 

Mr. Bi lklev. Mi-. Atkeson, do you agree with Mr. Brooks about 
the limit on the purpose for which the loans shall be made? 

Mr. Atkeson. I would limit that. I would put in a limitation of 
the loans to purchase money and operating machinery and improve- 
ment of the property itself. That is, I would not lend a man 
money, or permit him, if I could prevent it, from using the money to 
buy an automobile. 

Mr. Bulkley. Would you permit him to use it to refund an 
existing debt? 

Mr. Atkeson. Unquestionably. I see no reason why he should not. 
It is the same thing. Providing the existing debt is not beyond the 
limit that is allowed to be placed on the property. 

Mr. Bulkley. Yes; exactly. 

Mr. Atkeson. I see no season why he should not exchange one 
debt for the other. 

Mr. Bulkley. Do you think it is proper to go into a mortgage 
indebtedness for a long term of years for the purpose of buying 
equipment and stock? 

Mr. Atkeson. Oh, well, he probably would not want that kind 
of a mortgage for that kind of property. Perhaps the limitation 
ought to be narrowed down to purchase money and substantial im- 
provement. 

Mr. Bulkley. Those are the lines we have been thinking along, 
and I am glad to know you think the same way. 

Mr. Atkeson. The question of securing money for operating equip- 
ment ought to be considered in some short-time loan, if it is necessary. 

(Thereupon, at 4.10 o'clock p. m., the subcommittee adjourned until 
to-morrow. Wednesday, February 25, 1914, at 10.30 o'clock a. m.) 



WEDNESDAY, FEBRUARY 25, 1914. 

United States Senate, 

Washington, D. G. 
The committees assembled in joint session at 10.30 o'clock a. m., 
Senator Henry F. Hollis presiding. 

Present: Representatives Bulkley, Stone, Seldomridge, Weaver, 
Hayes, Woods, and Piatt. 

STATEMENT OF H. Q. ALEXANDER, OF MATTHEWS, N. C. 

Senator Hollis. Mr. Alexander, will you state your name, resi- 
dence, and occupation, for the benefit of the record ? 

Dr. Alexander. My name is H. Q. Alexander, and my residence 
is Matthews, N. C. By profession I am a country physician and 
farmer. I appear before the committee in a representative capacity, 
representing the North Carolina Farmers' Union, of which I have 
had the honor of being president for six years. 

Mr. Bulkley. Have you not also been engaged to represent the 
National Farmers' Union? 

Dr. Alexander. Yes. President Barrett wired me Saturday night 
to be here yesterday. And, as stated by the gentleman who pre- 
ceded me, representing farmers' organizations, I was called here on 
very short notice and have had very little time to think of the ques- 
tions before the committee ; and, as you will probably find out before 
I get through, I am not a financier. I have not made a special 
study of the proposition that is engaging the attention of this 
committee. 

I think, however, that I do know somewhat the needs of the 
farmers, because I have been working with the farmers for the last 
six years in their organized capacity in my State. And lest you 
may think I am not directly connected with the farm, since I am a 
physician, permit me to say that I live on a farm and superintend 
my own farm, and have never lived anywhere else than on the farm. 
Therefore, I am a farmer. I ceased practicing medicine four years 
ago. 

In taking up this question, I do not think there is any necessity 
for us to argue as to the importance of agriculture. Everybody 
admits that agriculture is a fundamental calling, on which rests the 
prosperity of every other industry. We can not have the most 
highly developed civilization in our country without manufactur- 
ing and commerce, which includes transportation and banking; we 
can not have any kind of civilization without agriculture. 

It is that calling which God himself made. All the others are 
man made. It is that calling which all of our people belonged to 
about a century ago. All of the people of this country were farmers 
at one time. It was the farmers who developed this country, who 

281 



282 RURAL CREDITS. 

cleared the forests, and who have brought into existence the wealth 
of this Nation. It is the farming class that continues to create 
wealth. Nearly 95 per cent of all the wealth created from year to 
year in the United States comes from the farms. 

Therefore, the importance of agriculture is not disputed, but is 
admitted by everyone; though until recent years, if we may judge by 
what Congress has done for agriculture, we would be forced to con- 
clude that, in actual practice, our Government has not recognized 
the importance of agriculture. Our Government is not to-day recog- 
nizing the importance of agriculture, as compared with the other 
industries of our country, if we may judge by what the Government 
has done and is doing for agriculture, as compared with the other 
industries. 

In the matter of appropriations alone, of the $1,000,000,000 ap- 
propriated by each Congress only $19,000,000 goes to agriculture, a 
small pittance, and of that, I believe, $3,500,000 goes to meat in- 
spection, $3,500,000 to the Weather Bureau, and about $7,000,000 
to the Division of Forestry; and that leaves only the small pittance 
of $5,000,000 that actually goes to agriculture. And yet that is the 
fundamental calling upon which the whole superstructure of our 
Government is based; and without it we would have no manufac- 
tures; without it we would have no transportation industries; with- 
out it we would have no commerce, and without it we would have no 
Government. 

Now, as I said, a few years ago all of our people were farmers. 
To-day we find, according to the last census, only 20 per cent, not 
quite 21 per cent, of the population are actually living on the farm 
and engaged in tilling the soil. 

A generation ago nine-tenths of the wealth of this Nation was 
owned by the farming class. To-day less than four-tenths of it is 
owned by the farming class. To-day we find 15 per cent of the 
population of the United States are homeless ; like our Master of old, 
they have no place of their own whereon to lay their head. 

That condition is growing worse year by year. The small home- 
owning farmers are losing their farms at the rate of something like 
60,000 every year. I mean the small farms are passing out of the 
ownership of the small farmer at the rate of 60,000 a year and going 
into the ownership of corporate wealth. And that explains to my 
mind why it is that land is so high to-day. That question was asked 
yesterday, Why is it that land is so high? That is one reason for it. 

Everybody recognizes the fact that the land is the primitive source 
of all wealth. Everybody knows also that the creation of land 
stopped some thousands of years ago, Avhereas the production of pop- 
ulation is going on all the time. That means that land is bound to 
become more valuable. The moneyed interests of this country, recog- 
nizing that fact, having monopolized all the manufacturing indus- 
tries, transportation industries, and the control of the banking busi- 
ness of the country, are now going out and monopolizing the owner- 
ship of the lands of the country, which, as I said, are the original 
source of all wealth. And there is where the land is going. 

And for that reason the price of land is higher to-day by far than 
it ever was before in the history of our country. The market value 
of lands has not gone up because of the intrinsic value of the land 



KURAL CREDITS. 283 

or because of the productive value of it. As one of the speakers said 
here yesterday, the productive value of land is not what it was 25 
years ago. I know whereof T speak, because I am on the farm and 
among the farmers all the time, and I know there are not 10 per cent 
of the farms in my country that are producing as much to-day as 
they did 20 or 25 years ago. The statistics, the census records, show 
that, while as a whole the products have increased 10 per cent in the 
last 10 years the population lias increased 21 per cent. So you can 
see from that that the increase in farm products is not keeping pace 
with the increase of population. 

What does that mean? We are seeing the effect already of it in 
the high cost of living; and unless there is something done to pro- 
mote agriculture and to keep more people engaged in agriculture — 
and in order to do that you have got to keep agriculture more 
profitable; you can not keep men there unless you do — unless some- 
thing is done to support agriculture and promote it, you are going 
to hear more of the high cost of living in the next 10 years than we 
have in the past 10 years, and more than we hear now. 

The only solution of this difficulty is to come to the aid and sup- 
port and promotion of the agricultural industries in this country, 
in order that Ave may keep the bright, ambitious boys and girls on 
the farms instead of have them leave the farm and go to the cities 
and build up the city population of our country at the expense of the 
rural districts. 

That has gone on to an alarming extent. I see it in North Caro- 
lina — that the small towns are springing up like mushrooms; the 
people are going to town and going into other enterprises and leav- 
ing the country largely in the hands of negroes in my section, and of 
ignorant tenants in most of the States. 

The tenant farming class has increased largely over the home- 
owning farming class. In my own State, the percentage of tenant 
farmers 20 years ago was 32. To-day it is 43. Forty-three per cent 
of the farmers of North Carolina are tenants, an increase of 11 per 
cent in 20 years. 

Mr. Platt. May I interrupt you right there? 

Dr. Alexander. Yes; certainly. 

Mr. Platt. Is that due to the breaking up of large farms, or do 
you mean to say that small owners have moved away and leased 
their farms? Have not the large farms been divided up into tenant 
farms ? 

Dr. Alexander. No ; I think there is a tendency in a great many 
sections to increase the large farms. As a matter of fact, I think 
the census shows that in all the States the percentage of increase 
of farms over 500 acres has been much greater than the small farms 
under that size. I mean the percentage. 

Mr. Platt. Is that true in your State? 

Dr. Alexander. That is true in my State, too — that a great many 
of the people have lost their little farms. I think the census also 
shows that these small farms in the United States as a whole are 
passing out of the ownership of the men living on them at the rate 
of 60,000 a year. I know those were the figures 10 years ago ; I have 
not seen the last figures, but those were the figures 10 years ago, that 
the small home-owning farmer was losing his farm at the rate of 
60,000 a year. 



284 RURAL CREDITS. 

Mr. Platt. What is he doing, leasing it and living on the money ? 

Dr. Alexander. Yes; he is leasing it and becoming a renter. 
You take the United States as a whole, and the increase of home- 
owning farmers is only 4 per cent, I believe, while the increase of 
tenant farming is 17 per cent. 

Mr. Platt. That is all the South and Southwest, is it not ? 

Dr. Alexander. I do not know just where, but that is the report. 
Now, there is a reason why the people have left the farm and gone to 
the cities; that is, the industries in the city are more profitable than 
farming. The reports of the Secretary of Agriculture show that 
the annual average profits of the farm are less than 5 per cent in the 
United States. You may take my own State and examine it, and I 
happen to know more about it. Our State is an agricultural State. 
Eighty-three per cent of the people of North Carolina live on the 
farms. And yet the manufactured products from the cities of North 
Carolina are $100,000,000 more than the agricultural products. That 
means that 18 per cent of the population from the towns are sending 
out $100,000,000 more in value than the 82 per cent of the population 
from the farms. That will give you a lesson and an idea of the 
comparative prosperity and profitableness of agriculture, as com- 
pared with manufacturing. 

Now. consider this question from the standpoint of justice as com- 
pared with what has been done by the Government for other clashes. 
Our Government, as you all know, has favored manufactures with 
special privileges, under a high protective tariff — which I do not 
mean to do more than refer to here. It has given special privileges 
to transportation industries. I believe that the railroads of our 
country have been given something like 250,000,000 acres of the public 
domain. 

Mr. Platt. Is that a special privilege? 

Dr. Alexander. It is a special gift. I think. 

Mr. Platt. Is not the Government giving land free to the farmers 
at the same time? 

Dr. Alexander. Yes; but it made no provision to keep them in 
possession of it. There is where the Government failed. I think 
the Government did right to give the land to the farmers to pro- 
mote home ownership, but, unfortunately, it made no provision to 
protect farmers in possession of their farms, and they are losing 
them. You know, as a matter of fact, the land all went out from the 
Government to settlers, except what was given to corporations. It 
all went out: but. as a matter of fact, we find to-day that two-thirds 
of the population have not got any. and so it got away from them. 

Mr. Platt. They have left the land voluntarily, apparently. 

Dr. Alexander. Well. I do not know about that. I do not think 
.a man ever gave up his title voluntarily. He may have sold — of 
course, he did sell it voluntarily; but I suspect there was some coer- 
cion, a coercion of circumstances, that led him to sell it. 

Mr. Stone. Do you mean to infer, Dr. Alexander, that Congress 
did protect the railroads in the ownership of the land that was given 
them, so that it was not disposed of? 

Dr. Alexander. Oh. no. 

Mr. Stone. Is it not true that the railroads disposed of it to set- 
tlers at a small price? 



RURAL CREDITS. 285 

Dr. Alexander. Yes. 

Mr. Stone. In order to fill up the country? 

Dr. Alexander. Surely. 

Mr. Stone. And that they made their returns from the products of 
those farms that they sold? 

Dr. Alexander. Yes. 

Mr. Stone. Is it not also true that the railroads gave the value to 
the land ? If they had not been there, there would not have been any 
value to the land? 

Dr. Alexander. Certainly the railroads have helped to build up 
the country. The only point I am making there is that the Govern- 
ment has not enabled the people to hold what it gave the people to 
start with. 

Mr. Platt. How could it do that ? 

Dr. Alexander. Because conditions have not been just and equita- 
ble for the farming class. 

Mr. Platt. Do you think the Government has discriminated 
against the farmer? 

Dr. Alexander. Yes; it has. 

Mr. Platt. In what way? 

Dr. Alexander. By granting special privileges to the other 
classes. 

Mr. Platt. Privileges which have not also been granted to the 
farmers? 

Dr. Alexander. Certainly; the farmers have never received any. 

Mr. Platt. What special privileges have been given to other people 
that have not been given to the farmers? 

Dr. Alexander. I referred also to the protection given the manu- 
facturing class. 

Mr. Platt. Has it not also been given to the farmers ? 

Dr. Alexander. No; no intelligent man believes now that the pro- 
tective tariff helped the farmer. 

Mr. Platt. Well, just now there is an enormous amount of butter 
and eggs being imported into this country; is that an advantage to 
the farmer? 

Dr. Alexander. But they never did concede that until the high 
cost of living was hitting the city foods, and they are now trying 
to bring in an increase of food products in another way. when they 
ought to have promoted agriculture, and we would not have had 
this necessity for opening our gates to other countries to import food 
products which our own people could and should produce. There 
is where the Government has failed to do its duty — by promoting and 
building up this fundamental calling which would supply the food 
products of this country. 

Now. since we are no longer an exporting nation of food products, 
they have got to open our doors to feed our own people, when we 
have got hundreds of millions of acres lying here idle and the people 
are congregating in the cities. 

Mr. Platt. Well, the Government supports the Department of 
Agriculture at an expense of some millions of dollars every year, 
and it gives the people free information of all kinds on the subject 
of agriculture. 

Dr. Alexander. It is only a pittance of $5,000,000 that actually 
goes to farming. 



286 RURAL CREDITS. 

Mr. Platt. lias the work of the Department of Agriculture re- 
sulted in decreasing the high cost of living? 

Dr. Alexander. Not yet. 

Mr. Platt. We do not maintain a department of railroads to tell 
the railroads how to run their business, do we? 

Dr. Alexander. No. 

Mr. Platt. Are not the farmers given special privileges in the 
Department of Agirculture. in the shape of the information they 
get there, or can get if they want tc avail themselves of it? 

Dr. Alexander. Well, that has helped agriculture somewhat, of 
course. But the only tendency and teaching of the Government 
in that direction has been to try to increase production, while the 
benefits of the increase in production have gone largely to the other 
classes. The raw materials that the farmers are creating to-day are 
bringing but little more money to the farmers themselves than the 
raw materials which they created 25 years ago. As a matter of fact, 
I think the reports will show that of every dollar paid by the con- 
sumer for the products of the farm only 40 cents of it goes to the 
farmer. The Government has helped him to produce more, but has 
not helped him to get more for what he produces. It has accrued 
to the benefit of the people as a whole, but not specially to the 
farmer himself. In that particular, " he that maketh two blades of 
grass grow where only one grew before " is not a benefactor to his 
own class, but only a benefactor to mankind at large. You know 
the cotton crop of the South last year brought $300,000,000 more 
than the cotton crop of the year before, although it figured 2,000,000 
bales less in quantity, so that gives an idea 

Mr. Stone (interposing). Are you familiar with the prices of 
corn and wheat and cattle, and can you tell how they compare now 
with the prices of 10 years ago? 

Dr. Alexander. Oh. they are a great deal higher. 

Mr. Platt. Is that an advantage to the farmers, or a disadvantage? 

Dr. Alexander. Yes. 

Mr. Platt. I say, is the high cost of living in the city generally 
an advantage or disadvantage to the farmers? 

Dr. Alexander. But take the matter of wheat, and I will tell you 
that the increased price of wheat is largely due to the fact that the 
farmers of the Middle West organized a fight against the Millers' 
Trust and built something over 2,000 cooperative elevators in that 
section, in which they stored their own grain and held it, and in that 
way forced the price up. That is due largely to their own efforts, 
the increased price of wheat. 

When I first began practicing medicine I bought my wheat and 
corn, too, and I bought good flour then for $1.50 a hundred ; and at 
that time these very wheat farms of the Middle West were covered 
by blanket mortgages. But by organizing and doing just what the 
farmers are doing to-day, fighting against the organized power of 
the other classes, the purchasing classes, they have succeeded in forc- 
ing the price of wheat up. 

Another reason is that the production of wheat has not kept pace 
with the increase of population. It is not because of anything that 
the Government has done for the wheat-growing and corn-growing 
farmers that those products are higher to-day than they were 25 
years ago. It is really in spite of all that the Government has done. 



RURAL CREDITS. 287 

Mr. Platt. Suppose, through some action of Congress, the cost of 
living should come down in the way of food products, would that be 
an advantage to the farmers? 

Dr. Alexander. No; I do not think it would. I am not contend- 
ing 

Mr. Platt (interposing). Well, just because the cost of living is 

high, would you say that that is the chief reason why agriculture 
should be helped from the standpoint of the farmers ? 

Dr- Alexander. That is a good reason from the standpoint of 
everybod}' else; and it is a good reason from the standpoint of the 
farmer, since this high cost of living does not go into his pocket. If it 
went into the farmer's pocket, we would say let conditions alone ; but 
it does not go into the farmer's pocket. As I said awhile ago, of the 
price paid by the consumer there is only 40 cents out of $1 that goes 
to. the farmer. The report of the Secretary of Agriculture shows 
that of the other 60 cents a small part goes to transportation and the 
greater part of it to the unnecessary middlemen. I say " unneces- 
sary" advisedly, because the majority of them are unnecessary mid- 
dlemen. 

Now, that is largely due to the fact that the farmer's business has 
not been financed. That brings us right down to the question before 
us to-day. 

Mr. Chairman, there is an article that I wrote on this subject for 
the National Field, the official organ of the National Farmers' Union. 
I do not want to impose upon the patience of the committee by read- 
ing the whole article. I wrote it a few days ago on the subject of 
" Rural credits legislation." But I will just come to the point and 
give you what I conceive to be the need of the farming class as to 
rural credits. 

The Chairman. Mr. Alexander, this article does not appear to 
be very long, and I wish you would read any parts of it that you 
desire, and make such comments upon it as you think should be made. 
The committee would like to have a full discussion of this subject. 

Dr. Alexander. All right. By request of Mr. Clarence Poe, who 
is editor of the Progressive Farmer of Raleigh, N. C., one of the 
largest farm papers in the South, having 100,000 subscribers, I think, 
I wrote this article on rural credits, and I will now state the sub- 
stance of it and make a few general comments on the subject. 
(Reading:) 

The economic crime of the century was perpetrated against the American 
people 50 years ago. when Congress delegated to private individuals and cor- 
porations (the national banks) the power to contract and expand at will the 
volume of the circulating money of the country. 

Through combinations resulting in trust formation, this power was gradually 
merged into a comparatively small number of the 7,500 national banks. 

And thus it has been for many years that a few men have been able, by con- 
tracting the volume of the circulating value-measuring medium, to send prices of 
all commodities downward, only to be raised again by expansion of the currency 
afterwards. 

Mr. Platt. Do you agree with that? 

Dr. Alexander. Yes; I do. They sent values downward in 1907 
until they got the Tennessee Coal & Iron Co. in their possession, and 
then they put values up again. 

Mr. Platt. Do you think that was done by the power of the na- 
tional banks to contract the currency? 



288 RURAL CREDITS. 

Dr. Alexander. It was done by the money powers of our country. 
The same thing would have been done last fall if it had not been for 
Secretary McAdoo coming to the rescue of the agricultural classes 
and putting $50,000,000 in the banks of the South and West. I do 
not believe there is a man who read the newspapers and the reports 
published at that time who does not believe that. (Eeading:) 

Thus it was possible to buy the products of the people's labor at a low price 
:nnl sell (hem at a high price. 

Pardon me, but is it not possible to do that? Is it not possible to 
contract the currency if men have that power? And whenever you 
contract the currency you make money dear, and that means that 
those commodities of which money is the measuring value — the value- 
measuring medium — it sends prices downward whenever money gets 
scarce and high. When money becomes plentiful and cheap, prices 
go up again. So that, if any individuals or corporations have the 
power, they can do that. And human nature is greedy and selfish ; 
and if you concede to them the power, they will do it. 

Mr. Platt. I do not believe they have the power. 

Mr. Woods. Dr. Alexander, in your article here, you suggest that 
national banks had too much power given them some 50 years ago to 
contract and expand the currency. The real reason for the need of 
a new banking and currency act was that they did not have that 
power. That was the real reason given, not only by Congressmen 
but throughout the Nation, that they did not have sufficient power 
to expand and contract currency. Therefore, a new currency law 
was needed. 

Senator Hollis. I think. Dr. Alexander, that you will really agree 
with members of the committee. You are using the word " currency " 
in the broadest sense, which includes credits? 

Dr. Alexander. Certainly. 

Senator Hollis. And credits will fill the function of currency, the 
same as bank checks do; and when credits are contracted it has the 
same effect 

Dr. Alexander. Certainly. 

Senator Hollis (continuing). The same effect, a good many of us 
think, as when currency is contracted. And it was in order to prevent 
that very thing and take away one of the causes that was assigned 
by the banks for contracting credit — that is, that there was a lack 
of currency — that we did pass the currency act, to make more cur- 
rency available in times of stress. 

Dr. Alexander. Yes. 

Senator Hollis. So that there would not be that excuse. That is 
the theory of it; and I think we are pretty fairly well agreed on that 
theory; but if you limit it to currency in the sense of what is ordi- 
narily known as "cash," that has been the trouble with our national 
banking system, that the currency did not expand and contract with 
the demands of business. I think we agree pretty well on that. 

Dr. Alexander (reading) : 

The national bank act was a war measure conceived by Secretary Chase for 
the purpose of creating a compulsory market for national bonds during the 
Civil War. AM national banks of issue were required to deposit with the Na- 
tional Treasury bonds of the Governmenl ; and then hank notes to the value of 
94 i- cent of tne value of the bonds would be issued to tlie bank. These hank 



RURAL CREDITS. 289 

notes were taxed only 1 per cent, while the bonds were nontaxable and paid the 
banks 4 per cent interest. This meant double interest to the banks. 

All subsequent legislation for many years tended only to increase the power by 
extending and enlarging the privileges of the national banks. For instance, the 
limit originally imposed upon the circulation of the national banks was $300,- 
000,000; all limit was removed in 1875. 

This compulsory market for United States bonds naturally raised the price 
until, in 1889, 4 per cent bonds sold as high as 129. This called for more bonds 
for the benefit of the bankers and resulted in new issues of bonds in 1894, 1895, 
1896, and 1898. 

Next followed the gold-standard law of 1900. This law permitted national 
banks to issue circulation to the full par value of the bonds deposited and re- 
duced the tax on the circulation based on the new refunding 2 per cent bonds 
to one-half of 1 per cent. The purchase of silver for coinage purposes had been 
suspended in 1893, and this metal was now demonetized by the adoption of the 
single standard, thus again tending to make money dear and making it easier 
for the national banks to control the volume of legal noney. 

Mr. Platt. I am afraid, Mr. Chairman, that your remarks about 
the currency including credits do not apply to the author of that 1 
article, anyway. 

Senator Hollis. This is Dr. Alexander's own article that he is 
reading. 

Dr. Alexander. Yes. [Reading:] 

There now remained substantially only two methods of increasing the volume 
of money in the country to meet the growth of business — the increase of gold 
currency, by importation and production of gold, and the increase of bank notes 
in circulation. This made possible the formation of the greatest and most 
powerful of all trusts — the Money Trust. 

Aside from the payment of salaries of Government employees, there is only 
one way for money to pass from the source of money (the Government mint 
and printing press) into the channels of trade, and that is the banks. And 
thus we see that the people are taxed with a double interest for all moneys — 
indirectly to pay interest on the bonds on which bank notes are issued and 
directly to the banks for the money when it passes into the channels of busi- 
ness. This applies to all classes and all businesses. 

This was discrimination against all the people in favor of a small class that 
was able to purchase Government bonds. Let us now consider how, in the 
administration of the national banks, the farming and laboring classes have 
been discriminated against, while the stock corporations and bondholding 
classes, bankers, manufacturers, transportation industries, and mercantile con- 
cerns have been favored. 

The stocks and bonds of those favored classes are negotiable collateral at 
the banks and can be used by the holder to obtain needed money. But the land 
and personal chattels of the farming and laboring classes will not secure for 
them the funds necessary to pay running expenses until they can realize on the 
fruits of their labor. 

This discrimination has resulted in the exploitation of the farmer by the 
more favored classes. He is forced to run his business " on time" and pay high 
prices for supplies. Then when marketing time comes he must sell, regardless 
of prices, to satisfy his creditors. 

Now, that is true. That is the actual condition in the country 
to-day, that because farmers can not get money they are compelled 
to go and trade with time merchants, who are getting the money from 
the banks to carry these farmers, when the Government itself ought 
to provide a way, so that any farmer who can put up any land of 
security that is good can go to the bank and get the money to run 
his own business, just as other classes do. 

Mr. Stone. Why is it that farmers can not now, if they have the 
security, go to the banks and get the money the way other people 
get it? 

37031—14 19 



290 RURAL CREDITS. 

Dr. Alexander. Because the national banks would not take their 
security. 

Mr. Weaver. Do you not think that the reason is that other people 
borrow from the bank on commercial paper, on short-time loans, and 
that the farmer is obliged to borrow it on long time? 

Dr. Alexander. That is one reason. 

Mr. Weaver. And the farmer can not get his loans on a long time 
without being charged usurious interest for it, as a business proposi- 
tion? 

Dr. Alexander. Well, the bank could loan it out at a lower rate 
of interest, as they do to the merchant; they could do that. 

Mr. Platt. Well, is it not, after all, a question of security? Has 
the farmer got the same grade and character of security as the 
merchant ? 

Dr. Alexander. Well, the merchant loans him the money. 

Mr. Stone. Well, is it not a fact that the banks do not consider 
the farmer's security as good as other security ? 

Dr. Alexander. It is more trouble to handle it, of course. 

Mr. Hayes. Is not the reason for that, that it is not a liquid se- 
curity ? 

Dr. Alexander. Not liquid ? 

Mr. Hayes. Yes; and therefore the commercial banks can not 
handle it ? 

Dr. Alexander. It requires a longer time limit, of course. 

Mr. Hayes. But it is not liquid. 

Mr. Platt. If a farmer owns a United States Government bond, he 
can go to the bank and borrow money as cheaply as any other man 
who has a Government bond. He is not discriminated against be- 
cause he is a farmer. 

Dr. Alexander. I do not mean that he is discriminated against in 
that way. 

Mr. Weaver. You do not know any farmers that do own Govern- 
ment bonds, do you? 

Dr. Alexander. No ; I do not know of any. 

Senator Hollis. It seems to be that the farmers are not likely to 
know the bankers so well and what the current rates are on loans, 
etc., and I imagine that if a good, active business man went to the 
bank with a Government bond he would be able to get better rates 
from the banks than a farmer who owned precisely the same kind 
of bond. 

Dr. Alexander. Surely. I happened to know that a poor farmer 
in the community where I live went to a bank in Charlotte not three 
months ago and they charged him 10 per cent, although the legal rate 
in my State is 6 per cent. They charged that poor fellow 10 per cent 
interest at that national bank in Charlotte. 

Mr. Weaver. He ought to have been in Oklahoma, where they 
would have charged him 15 per cent. 

Dr. Alexander. He ran not sustain that; agriculture can not sus- 
tain that burden. You know the average mortgage indebtedness of 
the farmers of the United States was over $1,700 each at the last 
census. The average rate of interest paid by farmers, according to 
Government statistics, is nearly 9 per cent, and yet the average profits 
of agriculture are less than 5 per cent, so you can see there the burden 
the farmer does carry. 



RURAL CREDITS. 291 

Mr. Stone. My question was calculated to bring out the thought 
that there were other reasons for the failure to supply the farmers 
with the money than the desire to discriminate against them. 

Dr. Alexander. Surely; I do not want that impression to out. It 
is not a desire to discriminate against or antagonize agriculture. It 
is due to commercial reasons. You are right about that. 

But I think it is the duty of our great Government to provide a 
banking system — since the Government alone has the right to do 
that — that will meet the needs of this great class, whose work is the 
basis of all the great prosperity of our country. That is my conten- 
tion. I do not attribute it to any animosity or any prejudice against 
the farming class, or any desire to prey upon that class, that they 
do not get accommodations through the banks, but it is because of 
commercial reasons. 

Now, it is up to our Government to change our banking system 
or to provide a banking system that will meet the needs of the agri- 
cultural class, and we believe you can do it, and I believe you are 
going to do it, because public sentiment is getting more aroused over 
this question than it ever has been before. 

Mr. Hayes. Let me ask you a question : You were saying a few 
moments ago something about the national banks issuing currency 
on the bonds. You are not here to ask us to retire the national-bank 
currency and take that privilege of issuing currency away from the 
banks, are you? 

Dr. Alexander. Oh, no. 

Mr. Hayes. You do not find any fault with that, do you? 

Dr. Alexander. Oh, no; I am just saying that I want you to do 
the same thing for the farmer; I want you to treat him just as well 
as you have treated the other classes. 

Senator Hollis. You are hoping that we will find some way in 
which the Government may loan funds direct to the farmer, are you 
not? Now, one of the difficulties raised against that system in prac- 
tice, leaving out the constitutional end of it for the present, is that, 
with private bankers, whose interest it is to make money for the 
stockholders and therefore to make only safe loans, they will have 
a greater knowledge of the men that they loan money to than Gov- 
ernment agents would be likely to acquire. You can see that diffi- 
culty, can you not ? 

Dr. Alexander. Yes. 

Senator Hollis. I would like to hear you discuss that point a 
little. 

Dr. Alexander. If you will pardon me, I should like to finish this 
statement first. 

Senator Hollis. All right, certainly. 

Dr. Alexander. Then I will take your question up, Senator Hol- 
lis. [Reading:] 

Progressive, broad-roinded men of all classes have come to realize that 
something must be done for the promotion of agriculture and to make this 
business of farming more profitable. Agitation and education have resulted in 
a demand for a system of rural credits, or farmers' banks, that will enable a 
farmer to get money at a reasonable rate of interest for short-time loans on 
any kind of safe collateral that can be put up. 

He can do that now. [Reading :] 

And whereby he can obtain money at a low rate of interest on long-time 
loans on real estate. Any system of rural credits that fails to provide money at 



292 RURAL CREDITS. 

6 per cent interest or less for the small farmer, secured by a mortgage on his 
stock, fixtures, and crop, and to be used only in the production and harvesting 
of ihc crop 1 , will fail completely to meet the needs of a large per cent of our 
farming people. 

The time for these loans should not exceed 6,' 9, or 1:2 months. 

And here is a point that I would like to impress upon you — if 
you get this far along in the formation of a bill — that the money 
should be held by the rural banks and paid to the borrower monthly, 
as needed, to pay running expenses in making and gathering the 
crop. I think it would be unwise for the Government to provide a 
banking system whereby that class of farmers — Tom, Dick, and 
Harry — whom perhaps do not get to handle $10 a year, who do not 
have $10 left after they pay their bills — I think it would be unwise 
if they could go to the bank and put up security and get $250 or 
$300 in the spring of the year and get that into their hands to 
handle as they pleased. That would not be wise. 

Mr. Weaver. But would not the plan you suggest make the bank 
the guardian of all the farmers? 

Dr. Alexander. Yes ; in a sense it is paternalism. 

Mr. Weaver. Do you think that the farmer who is worthy of ob- 
taining credit — and unless he is worthy of credit he ought not to 
have the money — needs espionage? 

Dr. Alexander. I believe they do. 

Mr. Weaver. Well, you have not as good an opinion of them as 
I have, although you may represent them. 

Dr. Alexander. Well, in that commercial sense, I believe they 
do. The class that have been run by the time merchants, if you turn 
over to them $200 or $300 to make their crop on — if it was a one- 
horse or a two-horse farmer — that money would probably get away 
before the crop was made. But he can very easily put up his se- 
curity, and the bank could give him so much in March, so much in 
April, and so much in May and June, until he can get the necessary 
money to make his crop. 

Mr. Seldomridge. Would you allow him to pay it back in the same 
way? 

Dr. Alexander. No; when due. 

Mr. Seldomridge. In one lump sum? 

Dr. Alexander. Well, according to when it was due under the 
contract. 

Senator Hollis. That is not a revolutionary method of making 
loans. 

Dr. Alexander. No. 

Senator Hollis. I understand that the building and loan associa- 
tion, where they loan money on a building being constructed, ad- 
vance the money as fast as it is needed to make the payments as the 
building goes up. 

Dr. Alexander. Yes; and the payments come back in the same 
way. 

Mr. Seldomridge. Let me ask you this question: Have the build- 
ing and loan associations the right to stop the payments if they find 
the contract is not being carried out? 

Senator Hollis. I can not state that that is so : I have never been 
closely connected with one of those building and loan associations; 
but I think that is the usual arrangement, and I should not be sur- 



RURAL CREDITS. 293 

prised if the building and loan association took that into their own 
hands by some provision of their by-laws, or the contract, so that 
they could stop payments if necessary. 

Mr. Hayes. Yes. I think the usual method is to send out an in- 
spector and to pay only when and as value has been put into the 
property. • 

Senator Hollis. I think that is about what is done ; but I can not 
state positively. 

Mr. Platt. I think that is the general practice. 

Dr. Alexander. The long-time loans should be made on real estate 
and for specific purposes only, and should be at a rate of interest not 
exceeding 4 per cent. I say 4 per cent for the reason indicated 
awhile ago, that the average profits of agriculture are less than 5 
per cent. 

These would be for permanent improvements on the farm, possibly 
for improvements that would not increase the revenue from the farm 
at all; for instance, for building a dwelling or building a barn, or 
such things as that; and therefore it would be necessary that these 
loans should be made at a rate not exceeding 4 per cent. 

These loans should be made for paying off a debt on the farm or 
home — and you will notice that I use both of those terms, " farm " or 
" home," because I do not believe that the laboring class should be 
excluded from the benefits of long-time loans, no matter whether 
they are farmers or not, for the purchase in part of a farm or home. 
I say " in part " because the Government does not propose to fur- 
nish all the money necessary for a home. I think it ought to furnish 
75 per cent of it. 

These loans should also be made for the equipment of the farm and 
for the education of the children. 

That brings up a question that is dear to the heart of every father 
that is really the kind of father that he ought to be. I know from 
personal observation that not 10 per cent of the agricultural class are 
able to give their children educations under present conditions. 

Mr. Weaver. You think that the public-school system, however 
efficient it may be, does not help the class, for instance, of tenant 
farmers, who need their children to work in the fields — they are 
almost compelled to have them at times? 

Dr. Alexander. Well, the public school is the only means of edu- 
cation they have. They can not go beyond that, and the public 
schools as they are in most of the States, especially in the South, I 
regret to say, are not efficient enough to give them the education they 
ought to have. 

Mr. Hayes. Dr. Alexander evidently has not in mind, for instance, 
the State of California, in which we have two great universities 
where the tuition is absolutely free and where we have five normal 
schools, and anybody can get an education there that wants it. 

Dr. Alexander. Yes; we have only one agricultural university 
in our State. North Carolina did stand at the foot of the ladder in 
educational facilities until the Farmers' Union got in behind our 
last general assembly and forced them to enlarge the public school 
term from four months to six months. 

Mr. Seldomridge. Do you know the average salary that is paid to 
white teachers in North Carolina? 

Dr. Alexander. It is less than the negroes get. 



294 RURAL CREDITS. 

Mr. Seldomridge. What do they get? 

Dr. Alexander. It is less than $200 a year. 

Mr. Seldomridge. And what is the average term of the public 
school ? 

Dr. Alexander. It is now six months; it was recently increased 
from four months. We also secured the adoption of the compulsory 
attendance law ; that was done by the farmers' organizations. 

Only bona fide residents should have the benefit of these loans. 
Real estate speculators should be rigidly excluded. They ought to be 
taxed out of business, anyway. 

The long-time loans should be on the amortization plan, whereby 
the farmer could pay the 4 per cent interest plus a small part of the 
principal every year until the whole was paid. The time should 
run from 5 to perhaps 30 years, with the privilege of paying in part 
or in full at any interest-bearing period without penalty. 

Several bills on rural credits have been introduced in Congress. 
I have carefully read six or eight of these bills. Not a single one 
of them has all of the good features or all of the provisions necessary 
to meet the demands and do justice to the American farmer. But 
all the features and provisions necessary to make a perfect bill are 
found in the many bills before Congress. 

The question that naturally comes up in our mind is whether or not 
Congress will take the good and necessary features of these various 
bills and combine them into one, or will our demand for bread be 
answered by giving us a stone. I believe Congress will grant the 
demands of the farmers and will give us what we need. 

In a general way the bill presented in the Senate by Mr. Fletcher 
and in the House by Mr. Moss is a good one. as it provides for the 
establishment of " national farm-land banks " and incorporates the 
cooperative plan (which, however, is optional, whereas it should be 
compulsory). But this bill lacks two provisions that are absolutely 
essential to any law that will give the farmer the relief he needs, and 
is justly entitled to, namely, short-time loans on any kind of safe 
collateral that he can furnish, as already explained, and long-time 
loans at not exceeding 4 per cent interest. This bill does not provide 
for loans secured by personal chattels, nor does it provide for cheap 
money, since the bulk of the money must be obtained by the sale in 
the open market of bonds of the farm-land banks, which bonds are 
backed by the mortgages or deeds of trust on lands. This is a fatal 
weakness in this bill, because it makes the land banks dependent on 
the commercial banks for money to be loaned. 

A bill by Mr. Thompson includes the provision for making loans 
on first mortgage on crops, stock, etc., for the purpose of making and 
harvesting crops. 

A bill by Mr. Doolittle provides for cheap money by making the 
National Government issue Treasury certificates to be designated as 
Government currency, the same to be retired when the land mort- 
gages have been paid off. 

And that is what I think the Government ought to do. 

Now. then, if Congress really wants to help the farmers, regard- 
less of how it may affect the profits of national banks, it can be done 
and all the provisions necessary for the law needed can be found in 
the various bills before Congress. 



RURAL CREDITS. 295 

In my judgment a land-loan bank dependent on the commercial 
banks for the money to be loaned would be a dangerous expedient. 
It could not provide cheap money. And many loans would be made 
for farm and home improvements that would not increase the rev- 
enue from the farm, such as a residence or barn, etc. Moreover, the 
average annual profits of agriculture are less than 5 per cent. There- 
fore the farmer should be able to get money at less than 5 per cent 
if it is to be used in buying a home or in making permanent im- 
provements on the farm. 

In the matter of short-time loans for making and harvesting crops 
he could afford to pay 6 per cent interest and thereby make a great 
saving over the present " on time " method of doing business. And, 
then, too, it would stimulate a spirit of manly independence in the 
small farmer if he could go to the bank and put up his own col- 
lateral and get money to run on a cash basis. Then, when his crops 
are harvested, if prices are low he should be enabled to continue the 
loan by storing his crops and putting up warehouse receipts with 
the bank. 

Now, Mr. Chairman, I am ready to answer your question. 

Senator Hollis. Yes ; it is, whether the Government could exer- 
cise that supervision over the solvency of borrowers that has to be 
exercised by private bankers or by a national bank in order to make 
the system a success? 

Dr. Alexander. I doubt the expediency of the Government doing 
it. I believe it would have to be done by the banking institution in 
the locality. 

Senator Hollis. Yes. 

Dr. Alexander. And I regret that a system designed to meet 
rural conditions was not included in the general currency law re- 
cently enacted. I believe there is where it ought to have been put. 
I believe it could have been done without jeopardizing the bill. Of 
course, I do not know positively as to that, but I believe that the 
present banks that we have all over the country could have done the 
work. There is the machinery already established. If the bill had 
made provision for the national banks to loan money on short time, 
on personal chattels, on chattel mortgages, there could have been an 
agent of the bank appointed to handle that particular kind of 
business. 

And then the long-time loans could have been provided for through 
that national currency bill. 

Mr. Bulkley. Dr. Alexander, what provision would you suggest 
should have been added to the currency bill to provide for short- 
time loans on chattels? 

Dr. Alexander. Well, I do not know whether you could have 
made it compulsory for the banks to loan that way or not, but I 
think that the Government should have stated that the banks — it 
should have made whatever legal provision it could, or whatever was 
necessary. 

Mr. Bulkley. Well, do you understand that there is anything to 
prevent the banks from making any such loans now ? 

Dr. Alexander. I think there are commercial reasons; I do not 
know whether there are any legal reasons or not. Were there any 



296 RURAL CREDITS. 

legal reasons in the old administration of the national banks? Were 
they allowed to take that kind of security ? 

Mr. Bulkley. Yes; anything except real estate- 
Mr. Hayes. Yes; they could accept any security except real estate. 

Dr. Alexander. They could accept chattel mortgages? 

Senator Hollis. Chattel security is nothing but collateral security ; 
but the trouble with chattel security is that it usually has to remain 
in the possession of the owner; and it is likely to be destroyed or 
stolen or to disappear, whereas the ordinary collateral securities are 
locked up in the vaults of the banks in the form of